Thanks to the moderation in inflation and investors’ growing risk appetite, several Canadian stocks have registered solid capital gains this year. Despite the recent appreciation, shares of a few high-quality companies are trading at a discounted valuation, offering significant value near the current levels.
So, if you are looking for undervalued stocks that are fundamentally strong, here are my two top picks.
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goeasy
goeasy (TSX:GSY) stock is an attractive investment near the current levels. Shares of this subprime lender have grown at a CAGR (compound annual growth rate) of more than 26% in the last five years, delivering an overall price appreciation of nearly 226%. While the company’s fundamentals remain solid, macro weakness led to a correction in its price, providing an excellent opportunity for buying.
Thanks to the drop in its share price, goeasy appears undervalued. It is trading at NTM (next 12-month) price-to-earnings multiple of 7.9, reflecting a discounted valuation from its pre-COVID levels. While its stock is trading cheap, the company continues to grow its top and bottom lines at a double-digit rate. Furthermore, the financial services company offers a dividend yield of 3.34% (based on its closing price of $113.51 on July 5).
goeasy’s revenue and earnings grew at a CAGR of 20% and 27%, respectively, in the past five years. Further, its wide product range, a large addressable subprime lending market, and higher loan originations position it well to deliver double-digit top-line growth in the future years.
Further, its high-quality loan originations, steady credit performance, and operating leverage could drive its bottom line at a solid double-digit rate.
Overall, goeasy’s high growth, low valuation, and decent yield make it a top long-term stock to create wealth. Also, the company is a Dividend Aristocrat and could continue to enhance its shareholders’ returns through higher dividend payouts.
WELL Health
WELL Health (TSX:WELL) stock bounced back in 2023, rising about 60% year to date. Notably, shares of this digital healthcare company lost substantial value in 2022, as investors feared that the company could find it hard to sustain growth amid economic reopening. Further, the general market selling in the tech stocks dragged it lower.
Despite concerns, goeasy consistently delivered solid growth driven by higher patient visits. Further, its focus on accretive acquisitions accelerated its growth rate. The company also delivered profitable growth on a net income basis in 2022, which gave a significant lift to its stock price.
While WELL Health stock has appreciated quite a lot, it is trading at the NTM enterprise value-to-sales multiple of 2.1, which is significantly lower than the historical average, making it too cheap to ignore near the current levels.
WELL Health is poised to deliver solid organic sales growth, reflecting higher omnichannel patient visits. Meanwhile, its recent acquisitions will further support top-line growth. WELL Health is also expected to benefit from increased sales in its high-margin virtual services business. Also, its investments in AI (artificial intelligence) and product launches bode well for growth.
Overall, WELL Health stock is significantly undervalued. Meanwhile, its ability to grow omnichannel patient visits and deliver profitable growth supports my bull case.
