2 Undervalued TSX Stocks Investors Can Buy in June

Large-cap TSX companies such as TD Bank and Restaurant Brands International are well positioned to deliver outsized gains to investors.

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The ongoing selloff offers investors an opportunity to buy quality stocks at a discount. There are several fundamentally strong companies trading on the Toronto Stock Exchange that are poised to deliver outsized gains over the long term.

Let’s take a look at two such undervalued gems Canadians can buy right now.

Restaurant Brands International

Valued at a market cap of $21 billion, Restaurant Brands International (TSX:QSR)(NYSE:QSR) is one of the largest companies in Canada. It operates as a quick-service restaurant company that include brands such as Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs.

In Q1 of 2022, QSR grew system-wide sales by 14% year over year. Its comparable sales growth stood at 8% on the back of strong sales from Tim Hortons Canada and Burger King International. Further, home market digital sales reached their highest level ever as a percentage of system-wide sales for QSR in Q1. Restaurant Brands International saw a record number of restaurant openings in the March quarter, allowing it to return $400 million to investors in the form of dividends and buybacks.

QSR pays investors an annual dividend of $2.78 per share, indicating a forward yield of a tasty 4.2%. In the last 12 months, QSR generated $1.36 billion in free cash flow, which suggests a payout ratio of less than 65%.

Analysts tracking QSR stock expect sales to rise by 8% year over year to $7.88 billion, which means its valued at less than three times forward sales. QSR stock is also trading at 16 times forward earnings, which is quite reasonable.

Bay Street expects QSR stock to increase by almost 50% in the next 12 months, making it an attractive buy for value and growth investors.

Toronto-Dominion Bank

One of the largest banks in Canada, Toronto-Dominion Bank is valued at a market cap of $173 billion. The triple whammy of rising interest rates, higher inflation, and a tepid macro-economy has dragged TD stock lower by 9.5% from all-time highs.

Banking is a cyclical industry, and it’s imperative for companies that are part of the sector to have robust fundamentals to tide over an uncertain environment. TD Bank claims to have a 21% market share in Canada and remains the top player across multiple product categories. It is also among the top-10 banks in the U.S., and this region accounts for more than 25% of total revenue.

Canada’s banking sector is highly regulated, which has allowed TD Bank and its peers to survive multiple downturns that include a financial crash and a worldwide pandemic in the last 14 years.

TD Bank ended the most recent quarter with a tier-one capital ratio of 15.2%, which is the highest ratio among banks in North America.

TD Bank offers investors a forward yield of 3.7%. Further, TD stock is valued at a forward price-to-earnings multiple of 12.6, which is cheap given its earnings are forecast to increase by 17% annually in the next five years.

Despite the recent pullback, TD Bank stock has returned 270% to investors in the last 10 years after adjusting for dividends. Comparatively, the TSX has gained 160% to investors since June 2012.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Restaurant Brands International Inc.

More on Dividend Stocks

money cash dividends
Dividend Stocks

Market Correction: 2 Oversold TSX Dividend Stocks to Buy for Total Returns

These top value stocks pay attractive dividends and look cheap to buy for a TFSA or RRSP focused on total…

Read more »

Dividend Stocks

2 Undervalued TSX Dividend Stocks to Buy in July

These unloved TSX dividend stocks could deliver attractive returns in the back half of 2022.

Read more »

sad concerned deep in thought
Dividend Stocks

$20 Billion Telco Merger: More Concessions and Conditions Ahead?

The mediation process in the proposed telco merger could lead to more concessions and conditions before the competition watchdog grants…

Read more »

Dividend Stocks

RRSP Investors: 2 Cheap TSX Dividend Stars to Buy for Total Returns

RRSP investors seeking attractive total returns can now buy top TSX dividend stock with high yields at discounted prices.

Read more »

rail train
Dividend Stocks

Canadian Pacific Railway (TSX:CP): A Top Wide-Moat Stock to Buy and Hold Forever

CP Rail keeps the goods moving around the country. Here’s why it’s a great pick for new investors.

Read more »

Businessmen teamwork brainstorming meeting.
Dividend Stocks

The 3 Top Large-Cap Stocks for TSX Investors

Have peace of mind by investing in top large-cap stocks during this market correction. Start researching BAM (TSX:BAM.A)(NYSE:BAM)!

Read more »

Golden crown on a red velvet background
Dividend Stocks

3 Dividend Aristocrat Stocks to Buy and Hold Forever

Three Dividend Aristocrats are excellent holdings for new and old investors with long-term financial goals.

Read more »

Dividend Stocks

Top TSX Stocks: 2 Industry Leaders to Own for 25 Years

These top TSX stocks pay attractive dividends and have made some long-term investors quite wealthy.

Read more »