3 Cheap TSX Stocks I’d Buy Before the Bull Market Arrives

Value investors can consider buying cheap TSX stocks such as Shawcor in June 2023. Let’s see why.

Aditya Raghunath

Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.

Published June 17, 2023 10:30 am EDT

A market downturn allows you to buy undervalued stocks at a discount and benefit from outsized gains on the recovery. The average bear market lasts 289 days, so it’s pretty difficult to time the bottom exactly. So, here are three cheap TSX stocks I’d buy before the bull market arrives.

Shawcor stock

A material sciences company, Shawcor (TSX: MATR) stock is priced at less than one times forward sales and eight times forward earnings. Its sales stood at $364 million in the first quarter (Q1), while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $55 million.

Shawcor’s order backlog for execution in the next four quarters rose 6% to $1.31 billion due to offshore pipe coating projects in Mexico, Brazil, and other Latin American regions.

Earlier this month, Shawcor announced the sale of its pipeline services operating unit. This transaction will allow the company to focus on its core portfolio and pursue organic as well as accretive acquisition opportunities, resulting in an increase in future cash flows.

Shawcor emphasized this shift in focus toward its materials technology business will result in lower volatility, higher margins, and free cash flows.

Analysts remain bullish on Shawcor stock and expect it to gain around 9% in the next 12 months.

Enerflex stock

A cheap energy stock to buy right now is Enerflex (TSX: EFX). It’s an integrated energy infrastructure and energy transition company that delivers natural gas processing, compression, power generation, and produced water solutions.

Enerflex operates in 25 countries and reported record quarterly sales of $825 million in Q1 of 2023, an increase of 150% year over year. Its adjusted EBITDA also more than doubled to $122.8 million in the quarter.

Due to its improving cash flows, Enerflex expects to lower its net debt-to-EBITDA ratio to below 2.5 times by the end of 2023. Once its deleveraging targets are met, Enerflex will have the flexibility to invest in growth projects or increase dividend payouts to shareholders.

Priced at 10 times forward earnings, EFX stock is trading at a discount of 70% to consensus price target estimates.

GDI Integrated Facility stock

The final cheap TSX stock on my list is GDI Integrated Facility (TSX: GDI), which operates in the outsourced facility services industry. Priced at 0.4 times forward sales, GDI stock trades at a discount of 30% to Bay Street price target estimates. The TSX stock has already surged 160% in the last five years and remains a compelling bet for value investors.

Despite a challenging macro environment, GDI increased sales by 19% to $591 million in Q1. It remains on track to end the year with sales of $2.4 billion, an increase of 10.5% year over year.

The company’s president and chief executive officer Claude Bigras stated, “As expected, we continued to see a reduction in COVID extras year-over-year in our Business Services segments, which affected both organic growth and margins; however, the base business within both our Canada and U.S.A. segments is performing well.”

With a strong foothold in Canada, GDI now aims to gain traction south of the border. Its balance sheet is robust, allowing GDI to support organic growth. With a leverage ratio of less than three, GDI can also allocate resources to fund acquisitions in the U.S.