Investors’ sentiment usually changes, whether positive or negative, after every earnings season. The release of quarterly results is currently ongoing, and, so far, corporate earnings of TSX companies have been fairly good. All eyes are mostly on oil companies due to robust cash flows and soaring profits.
However, other stocks outside the energy sector deserve serious attention, especially from value investors. The better-than-expected earnings reports of Cascades (TSX:CAS) and Neighbourly Pharmacy (TSX:NBLY) make them screaming buys. While both low-profile stocks trade at bargain prices, market analysts are bullish and forecast strong upsides.
Well-established industry player
Cascades is a provider of value-added packaging, hygiene, and recovery solutions. The $867 million company from Kingsley Falls is well established in North America’s packaging and containers industry. It produces, converts, and markets packaging and tissue products in Canada and the United States.
Three business segments, namely Tissue Papers, Containerboard, and Specialty Products, contribute to revenues. In the second quarter (Q2) 2022, sales increased 17% versus Q2 2021. Its operating income and net earnings reached $32 million and $10 million, respectively, compared to the $4 million operating loss and $15 million net loss, respectively, from a year ago.
Mario Plourde, Cascades’s president and chief executive officer (CEO), said, “Our packaging businesses delivered good sequential performances in the second quarter, with improved pricing and sales mix, higher volumes.” He added that the lower raw material costs in Containerboard helped offset the impact of continued cost inflation.
Management said the improvements in pricing and mix that were realized year to date mitigate the unprecedented headwinds on the cost side. However, they still trail the pace of the current high inflation environment. According to Plourde, the primary focus is to drive benefits from Cascades’s ongoing profitability initiatives in the Tissue Papers segment.
Cascades trade at only $8.60, or 37.12% lower from its 2021 year-end price. However, market analysts covering the stock have a 12-month average price target of $12.71, an upside of 47.7%. Since the company pays a hefty 5.1% dividend, your overall return in one year should be higher.
Like the healthcare sector where it belongs, Neighbourly Pharmacy underperforms year to date (-51.29%). As of August 5, 2022, the share price is down to $19.39 compared to its 52-week high of $40.07. However, market analysts forecast the price to climb 61.16% to $31.25 in 12 months. Note that the healthcare stock also pays a modest 0.98% dividend.
The $858.62 million company is the largest and fastest-growing network of community pharmacies in Canada. Neighbourly has expanded its diversified national footprint (275 locations) successfully since operations began in 2015. Management aims to be the country’s leader in community healthcare.
In Q1 fiscal 2023 (three months ended June 18, 2022), revenue grew 34% versus Q1 fiscal 2022. Net loss for the quarter was $743,000 compared to $73.68 million from a year ago. Its CEO Chris Gardner said the acquisition of Rubicon makes the business stronger.
Gardner added, “The strength and essential nature of Neighbourly’s business and our financial flexibility position us well to pursue our robust pipeline of acquisitions to continue to drive future growth.”
Long growth runways
Cascades and Neighbourly Pharmacy aren’t as popular as energy stocks but should attract value investors for their long growth runways. The breakouts are inevitable if the respective business continues to thrive amid the inflationary environment.