3 Surprisingly Undervalued TSX Stocks to Buy Now

Value investors should find three TSX stocks very attractive, because they are trading below their intrinsic values today.

| More on:
value for money

Image source: Getty Images

The TSX remains in record territory, despite the 0.65% dip mid-week. Six of the 11 primary sectors retreated, although utility stocks saved the day with the sector advancing 1.41%. Meanwhile, investors can take advantage of several buying opportunities.

Enghouse Limited (TSX:ENGH), Dollarama (TSX:DOL), and Stingray Group (TSX:RAY.A) are among the TSX’s undervalued stocks today. The share prices are surprisingly cheap, but they could multiply in value in the medium term.

Visible growth

Tech stocks are outside investors’ radars currently, but Enghouse is worth looking into. The $2.2 billion company provides enterprise software solutions globally. While revenue dipped 6.7% in Q1 fiscal 2022 (quarter ended January 31, 2022), versus Q1 fiscal 2021, volumes have returned to pre-pandemic levels.

Net income for the quarter increased 4.6% to $21.59 million compared to the same quarter in the previous year. At the quarter’s close, Enghouse had $214.8 million in cash, cash equivalents, and short-term investments. More importantly, external debt is zero. For fiscal 2022, management commits to continue with its two-pronged strategy to grow earnings.

Enghouse’s focus is internal growth and acquisitions, which it funds through operating cash flows. The shift towards cloud offerings in the contact centre market plus the U.S. Automated Fare Collection market are its growth opportunities.  

This technology stock is also a rare gem because it pays dividends. In Q1 fiscal 2022, the payout increased by 16%. It was the 14th consecutive year the dividend yield has increased by more than 10%. Based on market analysts’ 12-month average forecast, the current share price of $39.70 could climb 27.6% to $50.67. If you invest today, the dividend yield is 1.85%.

Complementing investments

Dollarama boasts a resilient business model and is excellent for risk-averse value investors. The impressive operational and fiscal results of this $21.96 billion company in fiscal 2022 reflects in the stock’s performance. At $75 per share, current investors enjoy an 18.56% year-to-date gain on top of the modest 0.28% dividend.

In the year ended January 30, 2022, sales, EBITDA, and operating income increased 7.6%, 13.4%, and 14.4%, respectively, versus fiscal 2021. According to management, Dollarama is well positioned to pursue its profitable growth, notwithstanding the complex environment.

A complementing investment to Dollarama is Stingray Group. The value retailer is now part of the latter’s retail media network. The $499.27 million global music, media, and technology company is a premium provider of curated direct-to-consumer and B2B services.

Stingray, through its proprietary streaming media technology, will produce and dynamically insert digital audio advertisements within Dollarama stores. Because of the connection to the retail audio network, Dollarama advertisers can reach and connect with shoppers at the point of sale.

The share price is relatively cheap at $7.08 per share. Besides the potential climb to $10 based on analysts’ price forecast, the overall return to prospective investors should be higher due to the 4.24% dividend.

Good entry points

Enghouse, Dollarama, and Stingray are undervalued vis-à-vis their business growth potential. The stocks are likely to multiply in value in the medium term, and, therefore, the current share prices are good entry points. More importantly, there are recurring income streams from the dividends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns and recommends Enghouse Systems Ltd. and Stingray Digital Group Inc.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

This 7.7% Dividend Stock Pays Cash Every Month

Freehold Royalties is a TSX dividend stock that offers you a monthly payout and an attractive yield of 7.7%.

Read more »

Dividend Stocks

2 Stocks to Buy Right Now With $2,000

If you have $2,000 that you don't need for a long time, consider these two TSX stocks that could deliver…

Read more »

Top TSX Stocks

3 Stocks to Buy While They Are on Sale

Looking for some of the best stocks to buy? Here are a handful of options that can provide growth and…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

TFSA investors can rely on these Canadian dividend stocks to earn tax-free regular passive income for decades.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Here’s the Average TFSA Balance in 2024

Alimentation Couche-Tard Inc (TSX:ATD) has been a worthy TFSA holding over the years.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

Why goeasy Stock Just Dropped From 52-Week Highs

goeasy (TSX:GSY) stock saw shares plummet 9% after the company announced significant leadership changes.

Read more »

question marks written reminders tickets
Dividend Stocks

Should Investors Buy the Dip in Fortis Stock?

Fortis has historically rewarded patient investors who buy the stock on a pullback.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

TSX Domination: The 8.3% Dividend Stock to Watch

This top dividend stock has seen shares rise 9% in the last year, and with a 8.3% dividend yield to…

Read more »