Are you looking for bargain stocks to buy on the dip?
For the most part, that’s a tall order. Stocks rallied in the first half of 2023 – U.S. stocks strongly so, Canadian stocks to a lesser extent. The rise of artificial intelligence (“AI”) and ChatGPT have sent investors into a buying frenzy, leading to major gains in both U.S. and Canadian tech stocks. As a result, the world’s most popular stocks, the ones that most investors are watching, are very expensive right now.
That doesn’t mean that there aren’t bargains out there, though. To the contrary, there are plenty, if you know where to look. Between banks, energy stocks and financial services companies, plenty of stocks are cheap today. In this article, I will explore two TSX stocks that I personally consider to be “no-brainer” buys.
Bank of Nova Scotia
The Bank of Nova Scotia (TSX:BNS) is a Canadian bank stock that is very cheap at today’s prices. The stock price ($65) is not exactly cheap in the absolute sense (it is no “penny stock”), but it has a cheap valuation. At today’s prices, the Bank of Nova Scotia trades at:
- 8.5 times earnings.
- 2.7 times sales.
- 1 times book value.
- A 6.3% dividend yield.
You could argue that, on a sector-relative basis, BNS is not all that cheap, since banks in general tend to be about this cheap. But it’s got at least a “modest” valuation for its sector, so it’s not an expensive name.
However, Scotiabank is not exactly what we’d call a “high growth” stock. Its revenue has only grown slightly, and its earnings per share have actually declined slightly, over the last five years. So, BNS isn’t the kind of stock you’d expect to deliver explosive capital gains. On the other hand, the dividend yield (6.3%) is so high at this point that you could arguably justify the investment based on income alone – regardless of whether the stock ever rises.
Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is another Canadian financial services stock that is quite cheap at today’s prices. It is an asset manager, meaning that it runs investment funds for clients in exchange for fees. This is a very profitable business model, as can be clearly seen in Brookfield’s profit margins. In the most recent 12-month period, Brookfield’s net income margin was 53%, which is among the highest of any publicly traded company in Canada.
What does Brookfield have going for it?
First of all, it has an asset-light business model, which means that it doesn’t have to spend a lot of money maintaining assets. This results in high profit margins.
Second, it’s fairly inexpensive, trading at just 1.4 times book value.
Third and finally, it has a 3.75% dividend yield, making it a valuable income opportunity.
BAM’s parent company, Brookfield, hiked its dividend many times over the decades prior to spinning off BAM to shareholders as a separate stock. In the years ahead, we’d expect Brookfield to do the same, as it has strong revenue growth and a relatively low payout ratio.
