As economic uncertainties loom large over the equity market, investors are now looking to buy and hold value stocks to generate consistent returns. Typically, value stocks are companies trading at a multiple that is lower compared to their intrinsic valuation offering significant upside potential to shareholders.
Here are three such value stocks trading at a discount that Canadian investors shouldn’t ignore in 2023.
Enerflex stock
An integrated global provider of energy infrastructure and energy transition solutions, Enerflex (TSX: EFX) is trading at a market cap of $1.1 billion. Despite falling oil prices and elevated inflation levels, Enerflex is on track to report adjusted earnings of $1.41 per share in 2024 compared to a loss of $1.04 per share in 2022.
So, EFX stock is priced at just 6.2 times forward earnings and trades at a discount of over 60% to consensus price target estimates.
In the first quarter (Q1) of 2023, Enerflex reported revenue of $825 million — a quarterly record for the company. It expanded gross margin by 27% to $161 million and also managed to reduce operating expenses, resulting in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $123 million.
Enerflex also generated $55 million in distributable cash flow, which will be used to fund two large infrastructure projects and deleverage its balance sheet. Additionally, the company pays shareholders annual dividends of $0.10 per share, indicating a dividend yield of 1.2%.
Uni-Select stock
A company that distributes automotive refurnish, industrial coating, and related products, Uni-Select (TSX: UNS) is valued at a market cap of $2 billion. In Q1 of 2023, Uni-Select reported sales of $449.5 million — an increase of 9.7% year over year. Its EBITDA also surged 9% to $40.3 million, indicating a margin of 9%. Comparatively, its adjusted earnings stood at $23 million or $0.46 per share.
Priced at 19 times forward earnings, the TSX stock is well poised to deliver solid returns to shareholders, given its strong balance sheet and widening cash flows.
Uni-Select lowered long-term debt by more than 30% in 2022 to $258 million, providing it with additional room to reinvest in growth opportunities and drive earnings higher over time.
The Northwest Company stock
The final TSX stock on my list is The Northwest Company (TSX: NWC), which also offers you a dividend yield of 4%. One of the largest retailers in underserved Canadian markets, NWC stores offer a wide range of products and services to customers. In fiscal 2022 (ended in January), NWC opened six new stores, allowing it to report revenue of $2.35 billion in the last 12 months.
In the last 10 years, its return on equity has averaged 22.5%, while its return on assets stood at 18.6% in the last five years. With a sustainable debt-to-equity ratio, NWC increased quarterly dividends by 2.7% to $0.38 per share. Since fiscal 2012, these payouts have risen by 3.7% annually.
NWC stock has created massive wealth for long-term investors. It has gained 382% since May 2003. But after adjusting for dividends, total returns are over a whopping 1,390%.
Currently, NWC stock is priced at 14.5 times forward earnings, the TSX stock can gain another 10% in the next 12 months.
