2 Deeply Discounted Value Stocks Capable of Beating the Market

Fairfax Financial Holdings (TSX:FFH) stock and another asset management play that trades at a considerable discount to book.

| More on:
sale discount best price

Image source: Getty Images

It’s been a profoundly choppy year for new investors. The euphoric rise of 2021 has come to an end along with the days of easy money. Indeed, actual profits and liquidity positions now matter. As investors hang onto hopes of rate cuts after the recent round of hikes, growth could have its day in the sun again. However, investors should not expect the speculative appetite that enriched many in 2020 and 2021. Those days are likely over, with various speculators licking their wounds, telling themselves they won’t chase hot stocks again.

Markets are in a bit of a weird spot right now, with the recent summer rally pulling back a slight bit. Of course, it’s all about the Fed and rate hikes. Though inflation isn’t yet under control, I think that any volatility should be taken advantage of by investors who have way too much cash on the sidelines.

In this piece, we’ll have a closer look at two capable value stocks that I think will beat the market through 2023. Though they’re likely to be dragged down over rate fears over the nearer term, I think that their strong fundamentals will shine through.

Consider Onex (TSX:ONEX) and Fairfax Financial Holdings (TSX:FFH), two diversified holding companies that are trading at embarrassingly steep discounts to book value.

Onex

Onex is a lesser-known investment manager that’s stuck in a rut, down 32% over the last five years. With competent managers and fine businesses positioned to roar back once COVID and recessionary headwinds fade, Onex stands out as a deep-value play that implies a very wide margin of safety.

At 5.7 times trailing price-to-earnings (P/E), Onex looks like a value trap, especially given many firms (like WestJet) under the Onex banner could take bigger hits in the quarters ahead.

Despite the headwinds, Onex stock reeks of value. Shares trade at a 0.6 times price-to-book (P/B) multiple, which is far lower than the industry average of 1.8. Recession or not, I find the depressed multiple on shares to be bordering on absurd.

At $66 and change per share, Onex provides investors with diversified exposure to a wide range of private businesses at an unprecedented discount.

Fairfax Financial Holdings

Fairfax is the insurer and holding company run by Canada’s Warren Buffett, Prem Watsa. While Watsa hasn’t really been able to crush markets with his investment moves of late, I still think he’ll be proven right over the long haul. He’s a patient investor who’s a contrarian at heart.

At writing, shares of FFH trade at a 0.9 times P/B, which is well below the insurance industry average of two. While shares haven’t really gained much in five years (up 6%), they have been a year-to-date outperformer — up nearly 8% to $672 and change per share.

Fairfax’s underwriting track record has been slowly improving over the years in spite of COVID headwinds. With a sound balance sheet and enough liquidity to acquire the beaten-down owner of Swiss Chalet Recipe Unlimited at a 53% premium, I think Fairfax is back to its old ways. After a multi-year slump, I think Fairfax is ready to leave the rest of this market behind.

Watsa is a very capable manager. Whenever you’re given a chance to bet on his firm at a discount, you should take it.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FAIRFAX FINANCIAL HOLDINGS LTD.

More on Investing

Nickel ore is mined from the ground.
Investing

Cameco vs. Barrick Gold: 2 Undervalued Mining Stocks Set to Unearth Gains

Cameco (TSX:CCO) and Barrick Gold (TSX:ABX) are top mining stocks that look to be on sale right here!

Read more »

stock research, analyze data
Investing

Could Dollarama Stock Reach $150?

After gaining over 44% in the last 12 months, can Dollarama stock keep up this exceptional growth rate and climb…

Read more »

TIMER SAYING TIME FOR ACTION
Tech Stocks

3 Reasons to Buy Shopify Stock Like There’s No Tomorrow 

Shopify stock fell 25% after reporting disappointing guidance. Should investors buy the dip and hold the stock for the long…

Read more »

grow dividends
Dividend Stocks

3 Canadian Stocks With a Real Chance of Doubling Your TFSA’s Value

Three outperforming Canadian stocks can help TFSA investors double their account balances.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 No-Brainer Stocks I’d Buy Right Now Without Hesitation

At any given time, the market may have certain stocks that offer a powerful combination of reliability, potential, valuation, etc.,…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

3 Canadian Growth Stocks I’d Buy Under $30

These under $30 Canadian growth stocks are well-positioned to capitalize on mega trends such as e-commerce, the electrification of vehicles,…

Read more »

Gas pipelines
Stocks for Beginners

3 Reasons to Buy Enbridge Stock Like There’s No Tomorrow

Enbridge (TSX:ENB) is a superb long-term option. Here's why you should buy Enbridge stock right now and hold it for…

Read more »

money cash dividends
Dividend Stocks

This 8.39% Dividend Stock Can Pay $100 Cash Every Month

Consider investing in this monthly dividend stock at current levels to lock in high-yielding monthly distributions to create a good…

Read more »