3 Undervalued Stocks to Buy Before the Market Snaps Back

Invest in fundamentally strong value stocks trading on the TSX to benefit from capital gains and steady dividend payouts.

| More on:
analyze data

Image source: Getty Images

While most equity markets endured an extended bull run between the financial crash of 2009 and the COVID-19 pandemic, it might be difficult to identify quality value stocks trading at a discount.

But the stock market selloff has dragged valuations of companies across sectors lower. Let’s take a look at three such undervalued stocks trading on the TSX that investors can buy now.

TSX value stock #1

A company engaged in the manufacturing of aerospace and aviation equipment, Exchange Income (TSX:EIF) is a TSX stock valued at a market cap of $2.27 billion. Exchange Income went public back in 2004 and has since delivered close to 3,000% returns to shareholders in less than 19 years. Despite these outsized gains, it also offers investors a tasty dividend yield of 4.7%.

EIF stock is forecast to expand its adjusted earnings by more than 30% each in the next two years, showcasing the resiliency of its business. Comparatively, EIF stock is priced at 18 times forward earnings, which is quite reasonable given its earnings expansion and dividend yield.

Analysts tracking the stock expect it to surge by more than 15% in the next year. After accounting for its dividend, total returns will be closer to 20%.

TSX value stock #2

A high-flying growth stock that is trading at a discount is Brookfield Renewable Partners (TSX:BEP.UN). Down 38% from all-time highs, BEP stock offers investors a forward yield of 4.5%. Since 2001, these payouts have increased at an annual rate of 6%.

One of the largest clean energy companies globally, Brookfield Renewable, is well positioned to deliver steady returns to shareholders in the upcoming decade.

Brookfield Renewable owns and operates a portfolio of hydro, solar, and wind energy facilities with a capacity of 24 gigawatts. It now expects to expand its capacity to more than 90 gigawatts in the next few years.

BEP stock is currently priced at a discount of more than 25% to consensus price target estimates.

TSX value stock #3

The final value stock on this list is one of Canada’s largest companies: Toronto-Dominion Bank (TSX:TD). Trading almost 16% below all-time highs, TD Bank pays shareholders annual dividends of $3.84 per share, translating to a yield of 4.3%.

Equipped with a strong balance sheet and a common equity tier-one ratio of 14.9%, TD Bank is positioned to tide over a challenging macroeconomic environment easily. A common equity tier-one ratio measures the financial strength of a bank to absorb losses, and a higher ratio is better, as it provides companies with an additional required liquidity buffer.

TD Bank enjoys a leadership position in Canada and is the second-largest bank by net assets, market cap, and net income in the country. It also has the highest deposits compared to its Canadian banking peers.

Priced at less than 10 times forward earnings, TD Bank has massive upside potential, especially if the economy recovers in the second half of this year. After accounting for its dividend yield, TD Bank stock can return around 15% to investors in the next 12 months.

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 Aditya Raghunath has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »