3 Undervalued TSX Giants That Smart Investors Should Load Up on

Buying robust and time-tested TSX giants when they are undervalued and holding them long term is an intelligent, wealth-building strategy.

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Safety is usually the primary reason most conservative investors are interested in blue-chip stocks. They have credibility, as industry leaders and giants and solid history (usually) to back them up. They may not offer capital-appreciation potential compared to smaller, more volatile counterparts, but that may be considered a reasonable trade-off for the risk mitigation they bring to the portfolio.

However, you can improve the overall return potential by buying these stocks discounted and undervalued — i.e., when they are offering a higher yield and recovery-based appreciation. Three such giants should be on your radar right now.

A fertilizer stock

Nutrien (TSX:NTR) is one of the largest fertilizer companies in the world and has an annual distribution of about 27 million tonnes of crop inputs, mainly potash. As a global leader in an industry tied to one of the most basic human needs, nourishment, Nutrien is an incredibly safe bet as a long-term holding.

It’s also undervalued right now and is trading at a price-to-earnings ratio of about 5.7 and a 24% discount from its yearly peak. The stock has risen over 150% since its 2020 crash valuation.

If it continues on this upward path, propelled by strong finances, you may see decent capital appreciation until external factors (like a recession) or a normalized valuation stops it in the tracks. You can still benefit from the dividends it’s offering, with the yield at 2.4%.

A bank stock

Canadian bank stocks, particularly the Big Six, are generally considered trustworthy and safe investments. The banks have a history of surviving major financial downturns, maintaining dividends, and growing payouts during healthy markets. This “pedigree” makes an investment like Bank of Nova Scotia (TSX:BNS), especially at its undervalued price, an intelligent choice.

The stock has fallen over 23% from its last peak and has a price-to-earnings ratio of about 8.5, making it both discounted and undervalued. The yield has risen to a desirable number of 5.7%. The high yield is supported by a safe payout ratio.

Dividends are the primary reason to consider this investment though the current slump may result in modest capital appreciation as well if the stock goes bullish with the market.

An insurance-oriented financial stock

If you are looking for a TSX giant offering an even more attractive yield, Great-West Lifeco (TSX:GWO) is an option worth exploring. This holding company operates in two major markets — North America and Europe — through two insurance and two financial services/investment companies. It’s also a Dividend Aristocrat, which endorses its position as a dividend stock.

It’s currently trading at a 21% discount and is also quite attractively valued. The discount has inflated the yield to 6.1%. However, the stock has already started to recover from its fall under the influence of a bullish market, and the yield may go under 6% as the stock moves up a bit more, so now would be the perfect time to consider buying this stock.

Foolish takeaway

The three TSX giants offer healthy yields and may also help you grow your wealth via capital appreciation if you hold them long enough. All three are leaders in their respective industries and have an impressive business presence, making them safe, long-term investment options.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA and Nutrien Ltd. The Motley Fool has a disclosure policy.

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