July 2023 is proving to be a complicated time for the market. Stocks continue rising, making it difficult to find names worth buying. This year has witnessed a massive increase in the prices of technology stocks. The launch of ChatGPT in November 2022 triggered a surge in interest in such stocks, taking them to new highs.
Today, the NASDAQ 100 — the index of U.S. technology stocks — trades at a 32 price-to-earnings (P/E) ratio! This inflated index valuation is all the remarkable when you consider that interest rates have increased dramatically, and you can now get nearly 5% returns on treasuries. The situation doesn’t look all that logical, but then again, there are good opportunities out there.
In this article, I will explore three TSX stocks I’d buy in July 2023.
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Brookfield
Brookfield (TSX:BN) is a Canadian asset management stock that trades at a mere 0.52 times sales and 1.24 times book value. It appears very cheap, and yet the stock is far behind the market this year.
Why are investors so pessimistic about Brookfield stock?
Part of it has to do with the fact that the company has defaulted on some debts this year. Earlier this year, the company’s funds defaulted on $789 million in real estate loans. The company defaulted on another $160 million worth a few months later. That brings us to nearly a billion in total defaults.
However, Brookfield has $450 billion in assets and $146 billion in shareholders’ equity ($39.9 billion of which is common equity). BN’s defaulted-on debts amount to 0.2% of assets, 0.65% of equity, or 2.3% of common equity. The exposure to bad real estate/mortgages is pretty minimal.
So, Brookfield will probably survive — and survive with its stock being quite cheap.
CN Railway
Canadian National Railway (TSX:CNR) is having a great year in 2023. Or rather, the company is having a great year; its stock is barely moving.
In its most recent quarter, CNR’s revenue increased 16%, and its earnings per share increased 38%. The growth was significant. And yet, CN Railway’s stock is actually down 6.8% for the year. As a result, investors can now buy it for below 20 times earnings for the first time in recent memory.
I would definitely buy this stock right now if I didn’t have other ideas I liked better.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is another modestly valued, yet fast-growing Canadian stock. At today’s prices, it trades at 15.7 times earnings, 0.68 times sales, 3.8 times book value, and 10.9 times operating cash flow. Despite the cheap valuation, the company is growing. For example, in the last 12 months, it has grown its revenue at 14.4% and its earnings and 21.5%.
This is pretty impressive, considering that a big part of the company’s business is fuel sales, and gas/diesel prices are going down this year.
TD Bank
Toronto-Dominion Bank (TSX:TD) is the one stock on this list I actually own. I first bought TD back in 2018 and have been holding it ever since, buying dips when appropriate.
Over the last five years, TD Bank has grown its revenue and earnings at 7% per year. It has a 4.6% dividend yield. It trades at just 9.5 times earnings. It has very high capital ratios — for example, a 15.5% common equity tier-one ratio — and is highly liquid. Put simply, TD has everything you’d want in a bank stock, yet the stock’s price is down for the year. Overall, it looks like a decent buy.
