Even after the TSX Index rallied 6% in the past month, there are still some attractive undervalued Canadian stocks floating around. If you have a long investment horizon, some patience, and an iron stomach, here are two undervalued stocks worth buying today.
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Brookfield Asset Management: Cheap now, but not forever
Brookfield Asset Management (TSX:BAM.A)(NYSE: BAM) continues to be one of my favourite Canadian stocks for value today. This $90 billion market cap stock is down 28% year-to-date. The market is worried about rising interest rates and a slowing economy. Brookfield holds a lot of debt at its subsidiary level, so the market is concerned about the effects of interest rates on its earnings potential.
Certainly, this is a risk. Yet, Brookfield has been through tough economic cycles before. In fact, it has used bear markets to deploy capital into long-term investments at high rates of return. Brookfield is a contrarian investor, so a down economy could actually provide very attractive investment opportunities.
Right now, this Canadian stock trades for a price-to-adjusted funds from operations (AFFO) ratio of 9.15 times. That is the cheapest it has been in the past 10 years. With $750 billion of assets under management (AUM), Brookfield is larger and better capitalized than ever. Its scale enables it to provide more services and grow more rapidly.
The company is targeting 20% annual distributable earnings growth for the coming five years. While that’s aggressive, it has consistently beaten its growth projections in the past.
Right now, investors can buy this Canadian stock with an attractive margin of safety. When the economy recovers, Brookfield will likely come out on top, just as it has in the past. Patient investors could do very well from here.
Colliers International: A high quality Canadian compounding stock
Another Canadian stock that is starting to look very attractive is Colliers International Group (TSX: CIGI)(NASDAQ: CIGI). After a 35% decline this year, Colliers trades for $121 today. It has a market cap of $5.26 billion.
Colliers is well-known for its commercial real estate brokerage operations around the world. 2021 was a very good year for the company as transaction volume surged once the pandemic abated. However, rising interest rates caused transaction volumes to taper, especially in the back half of this year.
Over the past five years, Colliers has been diligently diversifying its operations. Asset management, a higher margin segment, now makes up 30% of its business. Likewise, property management, engineering, project management, and other real estate services have grown significantly. Over 55% of its revenue is recurring today.
Colliers is very acquisitive, and it has a long history of adding smart businesses to its platform. This Canadian stock has compounded total returns by a 15.5% annual rate for the past 10 years. Its annual returns since inception are even better. It has significant insider ownership and management is very aligned with shareholders.
Today, you can buy this high-quality business with a price-to-earnings ratio of 12 and enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 9.5. It’s trading with a free cash flow yield of 7.4%. Basically, the company is trading as a lumpy transactional business when it should be trading as a services platform that is significantly more resilient.
You may need to take a long-term approach with this Canadian stock. However, given its stellar track record, strong management, and solid business, it’s likely to deliver very good returns in the future.
