2 Undervalued Long-Term Holdings for Your RRSP

Many astonishing stocks can offer you decent returns, regardless of the value you bought them at, but a discounted purchase significantly boosts the return potential.

| More on:
Glass piggy bank

Image source: Getty Images

Every investor has a different approach to choosing stocks for their retirement portfolio, and this approach changes as retirement goals and risk tolerance of the investors change over time. But some fundamentals always remain true.

For example, buying good companies when they are undervalued and holding on to them long term is highly likely to result in decent returns. An undervalued stock may have a better chance of seeing price appreciation (assuming its financials remain strong) in the long term than similar stocks that are pretty or overvalued. However, it’s not the only factor.

With that in mind, there are two stocks that you might consider for your RRSP-based retirement portfolio that you can buy at quite an attractive valuation right now.

An investment management company

Toronto-based Guardian Capital Group (TSX:GCG) has been around since 1962. While not as old, the stock has ample history to draw insights from, and its performance in the last decade looks quite promising, to say the least.

The last 10-year returns (price only) of the stock have been 200%. So, if it continues to grow at the same pace, and you buy now, you may be able to triple your money in the coming decade. And the probability of the stock going up continuously (though not linearly) seems decent enough, considering its current discounted valuation.

The stock is currently trading at a price-to-earnings ratio of just five. It’s also available at a 15% discount from its all-time high price point, and the current trajectory indicates that the slump/correction might continue for a while. The value will drop proportionally, so try and buy the dip for the best possible results.

A growth-oriented REIT

While it also offers decent dividends, Killam Apartment REIT (TSX:KMP.UN) might be a slightly better buy for its capital-appreciation potential. The 3.3% yield, along with a 10-year CAGR of 9.4%, are reasons enough to buy this REIT and hold it in your RRSP for decades.

The valuation discount makes it an even compelling buy. At a price-to-earnings ratio of 8.1, the stock is just slightly undervalued, considering the valuation of most of the other REITs. It’s also slightly discounted (12.4%), but you should consider waiting for the stock to drop further. Not only will it make the valuation even more attractive, but the yield would also go up proportionally.  

The REIT has a decently diversified portfolio of apartment properties. The residential asset class, even though it’s more vulnerable to the housing bubble, also makes it more potent when it comes to income production than commercial REITs since rental apartments are almost always in demand, regardless of the economic conditions.

Foolish takeaway

When you are preparing your retirement portfolio, it’s imperative that you understand and fully utilize the strengths of your TFSA and RRSP. Both tax-sheltered accounts are smart choices in their own rights, but together, they can help you make a flexible yet powerful retirement portfolio (but only if you choose the right assets to put in them).

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Killam Apartment REIT.

More on Dividend Stocks

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Here’s the Average CPP Benefit at Age 70 in 2024

Canadian retirees can supplement their CPP payout by investing in blue-chip dividend stocks such as Enbridge.

Read more »

Gas pipelines
Dividend Stocks

Is Enbridge the Best Dividend Stock for You?

Enbridge now offer a dividend yield of 8%.

Read more »

Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how a historical investment in TSX dividend stocks would have fared.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $100 Every Month

Want to earn an extra $100 per month in investment passive income? Here's how much cash you would need to…

Read more »

Canadian Dollars
Dividend Stocks

Buy 1,430 Shares of This Super Dividend Stock for $1,000/Year in Passive Income

Here's how to generate $1,000 in annual passive income with Dream Industrial REIT (TSX:DIR.UN) stock.

Read more »

A worker gives a business presentation.
Dividend Stocks

Ranking Inflation Rates in Canada: How Does Your City Stack Up?

Inflation rates stoked higher for some cities, but dropped for others. So let's look at how your city stacked up,…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

Inflation Is Up (Again): What Investors Need to Know

Inflation ticked higher in Canada this month, but core inflation was lower. Here's how investors can take advantage during this…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Want to Make $10,000 in Passive Income This Year? Invest $103,000 in These 3 Ultra-High-Yield Dividend Stocks

Can you earn $10,000 in passive income in 2024? You can by investing $103,000 in these ultra-high-yielding stocks.

Read more »