Buying cheap or undervalued stocks can help shareholders earn outsized gains on their investments. Typically, a stock trading below its intrinsic value is considered as undervalued.
A volatile and uncertain macro environment often presents investors with an opportunity to buy stocks trading at a discount. Here are three top TSX stocks that are trading at extremely cheap valuations in July 2023.
Stella-Jones stock
Stella-Jones (TSX: SJ) provides pressure-treated wood products in North America. Valued at a market cap of $4 billion, Stella-Jones stock is priced at 14.8 times forward earnings. However, its adjusted earnings are forecast to rise by 17% in 2023 and 12% in 2024. The TSX stock has more than tripled investor returns in the last decade, easily outpacing major indices.
With 17 pole peeling facilities and 43 wood-treating facilities, the company generates 70% of its sales from the U.S. Stella-Jones has increased its sales from $1 billion in 2013 to $3 billion in 2022 and is on track to end 2024 with revenue of $3.5 billion.
The company expects utility companies to invest heavily in infrastructure which will act as secular tailwinds for ancillary players, including Stella-Jones. Moreover, it also aims to expand margins, cash flows, and earnings via inorganic growth and accretive acquisitions.
Stantec stock
The third-largest design firm in North America, Stantec (TSX: STN), is valued at a market cap of $9.5 billion. Since July 2003, STN stock has returned 345% to shareholders. Despite its outperformance, the TSX stock is priced at 24.6 times forward earnings, and Bay Street analysts expect Stantec to grow adjusted earnings by 15% annually in the next five years.
In the first quarter (Q1) of 2023, Stantec increased sales by 17% year over year to $1.2 billion. Comparatively, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 14.6% and 20%, respectively, in the March quarter.
Stantec ended Q1 with a backlog of $6.2 billion, which represents around 13 months of sales. The company expects revenue to grow between 7% and 11% in 2023, while earnings growth is forecast between 9% and 13%.
Stantec also pays shareholders an annual dividend of $0.78 per share, indicating a yield of almost 1%. These payouts have risen at an annual rate of 9.5% in the last 12 years.
Celestica stock
The final cheap TSX stock on my list is Celestica (TSX: CLS), a company that provides enterprise-facing supply chain solutions. In Q1 of 2023, Celestica increased sales by 17% year over year to $1.84 billion, and it expects to end the year with at least $7.6 billion in sales.
Valued at $2.3 billion by market cap, CLS stock is priced at 0.3 times forward sales and 7.1 times forward earnings, which is really cheap.
Celestica is well positioned to keep growing its sales higher in the upcoming decade, as a Grand View Research report forecasted the global supply chain management market to grow by 11% annually to US$21 billion through 2030.
Additionally, Bay Street expects Celestica to grow adjusted earnings by 25% annually in the next five years, making it a top investment right now.
