When looking at undervalued TSX stocks, we have to be careful. We need to find companies that are going to come out strong after an economic downturn. Usually, the only way to really discover this is to see if management has managed to do this before.
Therefore, the TSX stocks I’m going to look at today are all blue-chip companies. Ones that have come out strong of economic downturns and recessions and have done so for decades. And these are the three I would recommend on the TSX today.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is the largest of the Canadian banks in terms of market capitalization. It has a diverse portfolio that spans the globe, yet shares aren’t doing so well right now. This comes from its exposure to the United States as well as the downturn that’s affected financial institutions like Royal Bank stock.
However, Royal Bank stock has provisions for loan losses experienced right now. It also continues to receive a vast amount of income from its wealth and commercial management sector. Plus, it’s not an American bank. Canadian banks enjoy exposure to the oligopoly in this country, rather than the immense amount of competition held in the U.S.
Shares of Royal Bank stock are down just 1% in the last year, trading at 12.29 times earnings as of writing. You can bring in a dividend yield of 4.02% right now and look forward to a strong recovery in the next year.
Manulife Financial
For more diversification and a great deal, look to insurance companies. Again, here in Canada, there just isn’t as much competition, so Manulife Financial (TSX:MFC) remains in a strong position. Plus, it also offers huge diversification in several ways.
While it provides insurance, it also provides asset management as well. Its locations are across Canada and the U.S. but also in Asia. It still has more room to grow as well but currently holds about $1.4 trillion in assets under management as of 2021.
Shares of Manulife stock are up 4% in the last year yet still trade at just 7.05 times earnings as of writing. It offers a dividend yield at 5.47% as well, plus the security of a rebound once an economic downturn hits bottom.
Brookfield
The last on this list that I would still count as undervalued, even though it trades at 25 times earnings, is Brookfield (TSX:BN). Formerly Brookfield Asset Management, the company heads a slew of spin-offs in every type of real estate from hotels and infrastructure to renewable assets.
This diversification also extends to its global locations, though most of its revenue comes from the United States and Canada. And, in fact, the company generates most of its revenue from private equity sources, providing business services in all of these asset sectors.
Shares are down 36% in the last year, and it currently offers a 1.56% dividend yield as of writing. Among TSX stocks, it certainly is further down than these others described. However, it stands to do quite well after inflation and interest rates cool off.
