Sometimes, Mr. Market just seems more willing to throw unloved stocks into the bargain bin. Indeed, he can be quite emotional at times. But unless you’re able to act as a true contrarian investor, it can be tough to spot value within the bargain bin, as real value plays can be surrounded by traps and other names that deserve to have taken a markdown.
Being able to spot value in any market condition is a skill valued by seasoned and disciplined investors. Of course, being a deep-value investor is more than just chasing stocks at 52-week lows or names with low (or below-average) price-to-earnings (P/E) ratios. One must understand a business fully and be able to determine the width of an economic moat. When recession fears close in, even high-quality businesses can become a magnificent bargain.
In this piece, we’ll have a look at two incredibly cheap stocks that I believe are still in the TSX bargain bin. One name has taken a massive hit over the past few years, while the other is close to a fresh new all-time high. Both names have different trajectories but look like terrific value options for long-term investors seeking upside.
Fairfax Financial Holdings
First up, we have Fairfax Financial Holdings (TSX:FFH), an insurance and investment holding firm managed by legendary top boss Prem Watsa. The stock has been on an unbelievable run over the past year, surging around 45%. Year to date, the stock is up 23%.
Even at new highs, I continue to view the name as one of the better values on the Canadian market right now. Shares trade at just 9.67 times trailing P/E. Even if this rally has another huge leg higher, the stock could remain modestly valued.
Fairfax’s underwriting performance is looking up, as too is Prem Watsa’s ability to find alpha in the most daunting of market conditions. For investors seeking exposure to an investment legend, look no further than FFH stock. It’s at a new high, but I still view it as deeply undervalued, given the trajectory of the business.
As a bonus, there’s a nice 1.34% dividend yield.
Onex
Onex (TSX:ONEX) is an investment manager behind a basket of intriguing businesses. In the first quarter, the company reported a US$232 million loss, thanks in part to some remarkable changes going on behind the scenes. At around 0.55 times price to book, I view Onex as a dirt-cheap name that could have considerable upside if it’s able to surpass estimates from here. The stock is down around 26% from its 2021 peak but is up more than 23% from its May 2023 lows.
Although Onex has a bit of baggage, I think deep-value investors can appreciate the name, as it looks to turn a corner. With so many wonderful assets (think WestJet airlines) that have turnaround potential, I’d not dare bet against Onex stock at these depths, even though the past stock price trajectory has been rather underwhelming.
Better buy: Fairfax or Onex stock?
I think you have to go with the winner in Fairfax. It has the wind at its back, and I don’t think it’ll be looking back, even as a recession hits. If anything, Prem Watsa thrives when market conditions get choppier!
