The ongoing market rout has been brutal for TSX stocks. The broad market pressures significantly weighed on some names, shoving them much lower than their fair values. As a result, some of these stocks present an attractive investment proposition from a valuation standpoint.
Here are two of them.
goeasy
Canada’s top consumer lender stock goeasy (TSX:GSY) has dropped 16% since last month. However, the correction has made it attractive for discerning investors. It is currently trading at a price-to-book value ratio of 2x, much lower than its historical average.
Considering its dominant position in Canada’s non-prime lending market and superior earnings growth, GSY deserves a premium valuation. However, recession fears and, especially pressures on the entire global banking system recently have weighed on it negatively. Nonetheless, as broader economic woes ease, GSY stock could soon recover.
goeasy is a $1.8 billion non-prime lender that charges higher interest rates to borrowers. Traditional financial institutions do not cater to non-prime borrowers due to regulatory constraints. This opens up a huge market for established consumer lenders like goeasy.
Its omnichannel presence and strong underwriting have played well over the years, facilitating stellar financial growth. Its net income has grown by 34% compounded annually in the last decade, a remarkable feat for a risky lending industry.
The lender’s long-term average return on equity comes to around 23%, representing strong profitability and growth. Interestingly, management has guided similar profitability at least through 2025.
GSY might continue to create shareholder value, driven by its strong loan originations and encouraging repayment trends. This makes GSY stock a fundamentally attractive bet for long-term investors.
Canadian Natural Resources
TSX energy stocks have felt the full-blown impact of the recent market turmoil and have lost 16% so far in March. While energy names usually do see such disproportionate hits, the recent drop seems a tad overstressed.
Meanwhile, Canada’s largest energy company by market cap, Canadian Natural Resources (TSX:CNQ), is an appealing bet from a valuation standpoint.
CNQ stock is trading seven times its earnings and free cash flows. This multiple looks attractive for a Canadian energy giant like CNQ. It is trading at a premium compared to some TSX energy peers and indicates investors’ high expectations of growth from it.
Canadian Natural checks several boxes if you are looking for a fundamentally high-quality stock. Its top asset quality facilitates profitability even at lower oil prices. It has a strong balance sheet with manageable leverage and a sound liquidity position.
Moreover, CNQ offers reliable dividends with a juicy yield of 5.2%. Note that CNQ kept raising dividends during the pandemic as well, when peers suspended or trimmed. Management has raised shareholder payouts for the last 23 consecutive years, highlighting its earnings and dividend stability.
Interestingly, Canadian Natural Resources has announced it will allocate 100% of its free cash flows to shareholder returns this year. This will likely involve aggressive buybacks and consistent dividend increases.
Oil and gas is one of the volatile sectors across markets. However, it has notably outperformed broader markets in the last three years. CNQ is a top bet in the sector due to its scale, strong execution, stable dividends, and balance sheet strength.
