On Friday, the U.S. Labor Department reported an addition of 236,000 nonfarm payrolls in March, which was lower than analysts’ expectation of 239,000. It was the first time in the last 12 months that job growth was lower than expected. So, amid signs of job markets and inflation cooling down, we can hope that the Federal Reserve will be more flexible in its monetary policies, thus driving the equity markets higher.
So, amid improving investor sentiments, these three cheap stocks look like excellent additions to consider for your portfolio.
Suncor Energy
OPEC (Organization of the Petroleum Exporting Countries) has announced it’s slashing its production by 1.2 million barrels per day from next month. Also, Russia intends to cut its output by 500,000 barrels per day. With these new production cuts and OPEC’s announcement of 2 million barrels per day in October, global oil production has declined by 3.7 barrels per day, around 3.7% of the worldwide demand. These production cuts have increased oil prices, benefiting oil-producing companies such as Suncor Energy (TSX:SU).
Meanwhile, analysts expect oil prices to rise further amid rising demand from China and supply concerns. Besides, the company’s production could increase this year, with the midpoint of its guidance representing 1.6% growth. Also, with solid cash flows, the company repaid around $3.2 billion of its debt last year, thus lowering its interest expenses this year. With higher price realization, increased production, and lower interest expenses, I expect Suncor Energy to deliver solid performances in the coming quarters.
However, the company currently trades more 20% lower than its 52-week high, while its NTM (next 12 months) price-to-earnings multiple stands at 7. Also, it rewards its shareholders with a quarterly dividend while its yield for the next 12 months is 4.88%. So, considering all these factors, I am bullish on Suncor Energy.
Cargojet
Cargojet (TSX:CJT) is a cargo airline company that offers time-sensitive overnight delivery services to prominent cities in Canada. Last month, the company reported weaker fourth-quarter performance, with its adjusted EPS (earnings per share) declining by 63.7% amid rising expenses. Also, amid the slowdown in consumer spending due to high inflation and an expectation of an economic downturn, the company has decided to sell two of its Boeing 777-300 aircraft while postponing other modifications.
Facing weak fourth-quarter performance and a cloudy outlook, Cargojet has been under pressure over the last few months. It trades at an over 58% discount compared to its all-time highs. Despite the near-term volatility, the company’s long-term growth prospects look healthy, as the demand for air cargo services could outperform the capacity growth for the rest of this decade. Besides, the company’s cost-cutting initiatives could boost its margins in the coming quarters. So, considering its long-term growth prospects and cheaper valuation, I expect Cargojet to deliver superior returns over the long term.
goeasy
My final pick would be an alternative financial services company, goeasy (TSX:GSY), that caters to subprime customers. Rising interest rates and a sell-off in the banking sector amid the contagion risk after the collapse of Silicon Valley Bank have led to a substantial sell-off in the last few months. What’s more, the announcement from the federal government that it intends to lower the maximum allowable annual percentage rate on loans to 35% from the current 47% has also contributed to the decline in its stock price.
Meanwhile, the company has lost around 57% of its stock value compared to its all-time high. The steep correction has dragged the company’s NTM price-to-earnings down to an attractive 6.7. Despite the challenging market conditions, goeasy is confident of maintaining its growth, as only 36% of its loans carries interest rates above the newly proposed allowable rate. Also, the company’s financials are said to be on a solid footing to cushion these rate adjustments. So, I believe goeasy would be an enticing buy at these levels.
