The ongoing stock market correction has a silver lining, as investors can pick out under-the-radar stocks with immense growth potential. As commodity prices fall globally on recession fears, the relatively resilient S&P/TSX 60 index might soon enter the bear market territory.
However, as the markets remain oversold, scooping up value stocks can help you generate manifold total shareholder returns over the long run. Let’s look at three such stocks investors can buy right now.
Canadian Tire
With a $10.34 billion market cap, Toronto-based Canadian Tire (TSX: CTC.A) is one of Canada’s largest retail automotive companies. Canadian Tire benefitted from the solid automotive and related parts demand globally, driving its quarterly sales and earnings in recent months.
Its revenues increased 15.5% year over year to $514.50 million in the first quarter of 2022, which ended in March. Retail sales rose 9.7% year over year in the first three months of 2022. In addition, earnings per share improved 23% year over year in Q1 to $3.03.
Thanks to its improving financials and profit margins, Canadian Tire hiked its quarterly dividends by 25% earlier this year, which is in line with its balanced capital-allocation approach. The company currently pays $6.50 in dividends annually, translating to a 3.74% yield.
However, Canadian Tire continues to trade at a huge discount compared to its peers. The stock is currently trading 0.56 times its forward sales, lower than the peer average of 0.82. Also, CTC stock is currently trading 5.91 times its trailing-12-month cash flows, which is very reasonable.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX: TD)(NYSE: TD) is the second-largest commercial bank in Canada, with a 21% market share. After passing the Bank of Canada’s stress test with flying colours, TD stock gained marginally earlier this month, outperforming the benchmark indices.
TD has a common equity tier-one capital ratio of 15.2% as of March 31 — one of the highest among North American banks. Also, its adjusted net income came in at $3.83 billion in the fiscal 2022 first quarter, translating to adjusted earnings of $2.08 per share. This compares with a net income and EPS of $3.38 billion and $1.83, respectively, in the fiscal first quarter of 2021.
TD holds substantial assets and cash balance to overcome a potential recession. Still, the stock is currently trading at a deep discount compared to its peers. Analysts expect the stock to hit $100.03 within the next 12 months, indicating a 20.3% potential upside.
Canadian Pacific Railway
With global supply chain disruptions emerging as a major headwind to economic growth, logistics and transportation stocks such as Canadian Pacific Railway (TSX: CP)(NYSE: CP) are poised to grow substantially in the years to come. The transportation giant has been taking active steps to boost its market share in the Canadian shipping and logistics industry.
Canadian Pacific signed a multi-year agreement with global shipping and logistics leader CMA CGM Group in May to become the latter’s primary rail provider in Canada. CP’s executive vice-president and chief marketing officer John Brooks said, “CP is proud to provide CMA CGM with safe and reliable service that includes the shortest route miles to key markets … CP’s dedication to best-in-class service is enabling supply chain recovery that will drive future growth opportunities for the North American economy.”
Bay Street analysts expect Canadian Pacific’s revenues to increase 10.1% year over year to $1.73 billion in Q3. The consensus earnings estimate of $0.80 period indicates an 11.76% increase from the third quarter of 2021. Moreover, the stock has a consensus price target of $103.08, indicating a 10.32% potential upside.
