The stock market decline over the course of 15 months has thrown up plenty of opportunities to buy quality companies at a discount. The valuations of several stocks across sectors are compelling, making the time ripe to go bargain hunting.
Here, we look at three cheap or undervalued stocks that long-term investors can buy with $1,000 right now.
Bank of Nova Scotia stock
The banking crisis south of the border has driven share prices of financial services companies lower this month. One such TSX giant, the Bank of Nova Scotia (TSX:BNS), has lost 10% in the last month, increasing its dividend yield to 6.3%.
While bank stocks in the U.S. are feeling the heat of a tepid lending environment and multiple macroeconomic challenges, their counterparts in Canada are in a much better position. The banking sector in Canada is heavily regulated, and a majority of these banks operate conservatively.
Armed with a robust balance sheet, Canadian banks, including BNS, are well-capitalized and can easily endure a market downturn. In fact, all the big banks in Canada maintained dividend payouts during the financial crash of 2009, indicating they enjoy a defensible moat in the country.
An increase in interest rates since the start of 2022 has led to lower demand for mortgage, commercial, and personal loans. Moreover, analysts expect BNS to report adjusted earnings of $7.64 per share in fiscal 2023 (ending in October), compared to earnings of $8.5 per share in fiscal 2022.
Despite a compression in earnings, BNS stock is valued at 8.6 times forward earnings, which is quite reasonable considering its tasty dividend payout.
An energy infrastructure company, Enerflex (TSX:EFX) has a diverse base of cash-generating assets, allowing it to earn a stable and recurring stream of revenue. These assets include a global fleet of gas compression and processing applications leased to enterprises. Enerflex also provides after-market services, parts distribution, and maintenance solutions to customers.
Valued at a market cap of $1.1 billion, Enerflex has spent $1.2 billion on acquisitions and capital expenditures in the last decade. Priced at six times forward earnings, Enerflex is forecast to report earnings of $1.66 per share in 2024, compared to a loss per share of $1.04 in 2022.
Due to its cheap valuation, EFX stock is trading at a discount of 65% to consensus price target estimates.
The final cheap stock on my list is Uni-Select (TSX:UNS), a company involved in the distribution of automotive refinish, industrial coatings, and related products.
Uni-Select has increased sales from US$1.5 billion in 2019 to US$1.7 billion in 2022. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) more than doubled from US$64.6 million to US$159.6 million in this period.
Due to widening profitability margins, Uni-Select is forecast to increase earnings per share to $2.85 in 2024, indicating a forward price-to-earnings multiple of 16.5 times.
In the last 12 months, Uni-Select’s free cash flow stood at almost US$150 million, providing the company with the resources to strengthen its balance sheet and grow via accretive acquisitions.
Uni-Select has already lowered its net debt-to-adjusted EBITDA ratio to 1.3 times in Q4 of 2022 compared to 2.1 times in the year-ago period. The auto supplier reduced long-term debt 30.6% to $258 million in the last four quarters.