Some investors have the knack for identifying undervalued stocks or stocks trading below their (perceived) intrinsic or actual values. Saputo (TSX: SAP), Primo Water (TSX: PRMW), and Suncor Energy (TSX: SU) underperform year to date, but the market could be wrong.
The three low-priced Canadian stocks are buying opportunities if you’re scouting for great buys this month. They also carry buy or hold ratings from market analysts. Besides significant gains from an eventual price breakout or rebound, you will partake in their attractive dividends.
Strong core business
The trading volume of Saputo lately is higher than usual following the impressive profit growth in fiscal 2023. This $12.5 billion company is one of the world’s largest dairy processors. In Canada, it’s the leading cheese manufacturer and fluid milk and cream processor.
In the 12 months that ended March 31, 2023, net earnings soared 127% to $622 million versus fiscal 2022. Notably, cash generated from operations jumped 128.8% year over year to $421 million. In the fourth quarter (Q4) of fiscal 2023 alone, income grew 330% year to date to $159 million compared to Q4 fiscal 2022.
Its chair of the board, president, and chief executive officer (CEO) Lino Saputo credited the solid performance in the fourth quarter to pricing initiatives, strong international markets, and favourable commodity prices. However, while the impact of high inflation on Saputo’s overall input costs will moderate, the level will remain elevated.
Still, management said new product innovations, brand investments, and advertising should drive organic growth. It also targets $2.125 billion in adjusted earnings before interest, taxes, depreciation, and amortization by the end of fiscal 2025, or 44% higher than in fiscal 2021’s baseline. If you invest today, the share price is $29.63 (-10.64% year to date), while the dividend yield is 2.43%.
Harnessing technology
Suncor is among the actively or heavily traded stocks on the TSX. This top-tier energy stock trades at a discount ($37.51 per share), although the 5.55% dividend yield offsets the temporary weakness (-10.48% year to date). Furthermore, management’s latest announcement should excite investors.
The $49.1 billion oil bellwether introduced and implemented an automation technology or the “dynamic dispatch” system at its Mildred Lake site. According to Suncor, the innovative system instantly increased efficiency, streamlined the work process, and improved overall operational performance.
Suncor commits to embracing cutting-edge solutions and harnessing technology. Its dynamic dispatch system revolutionizes mine operations and sets a new standard for operational excellence in the energy industry.
Solid foundation
Market analysts say consumer staples stocks overcome inflationary pressures because the companies pass price increases to customers. Primo Water underperforms with its -20.21% year-to-date loss, although it won’t be for long. Based on market analysts’ forecasts, the price could climb from $16.58 to $29.33 (+77%) in one year. The overall return should be higher if you include the 2.57% dividend.
The $2.64 billion company provides drinking water solutions to customers (residential and commercial) in North America and Europe. In Q1 2023, net income reached US$5.8 million against the US$6.7 million net loss in Q1 2022. Primo’s CEO Tom Harrington said the strong earnings growth was due to pricing and increased customer demand.
Harrington added that Primo has a solid foundation to achieve a high single-digit organic revenue growth in 2024.
True worth
The undervalued Canadian stocks would seek or show their true worth in a matter of time. While Saputo, Suncor Energy, and Primo have positive business outlooks, the energy stock should deliver superior returns.
