Yesterday, the S&P/TSX Composite Index fell 1.9% amid broad market weakness. China reported lower-than-expected retail sales, industrial production, and fixed asset investments in July. Besides, the People’s Bank of China slashed its interest rate on the medium-term lending facility by 15 basis points, raising concerns over China’s recovery story post-pandemic. The weak Chinese economy could hurt the Canadian markets, especially the energy and material sectors.
Despite the near-term volatility, investors can go long on the following three cheap TSX stocks, which can outperform the broader equity markets over the next three years.
Pizza Pizza Royalty
First on my list would be Pizza Pizza Royalty (TSX: PZA), which has witnessed healthy buying this year, raising its stock price by 15.9%. However, it still trades at an attractive valuation, with its NTM (next 12 months) price-to-sales and price-to-book multiples at 0.8 and 1.7, respectively.
Meanwhile, the owner of the Pizza Pizza and Pizza 73 brand restaurants reported impressive second-quarter performance last week. Its same-store sales grew by 9.4% boosted by menu price increases, promotional activities, and product innovations. Supported by solid same-store sales and a rise of 16 restaurants in its royalty pool, the company’s royalty pool system sales increased by 13.5%. Besides, its adjusted EPS (earnings per share) grew by 11.8%.
Meanwhile, PZA’s management in June raised its monthly dividend by 3.5% to $0.075/share. It was the seventh dividend hike since April 2020, while its forward yield currently stands at an impressive 5.90%. Besides, the company has planned to increase its restaurant count by 3-4% this year. Also, it is focusing on renovating its old restaurants, which could continue to drive its financials in the coming quarters. So, I believe PZA would be one of the top stocks to have in your portfolio.
Suncor Energy
Oil prices are rising over the last few months, with Brent oil up over 18% compared to its June lows. Further, analysts are bullish on oil and expect the prices to rise further as the production cuts by OPEC (Organization of the Petroleum Exporting Countries) and its allies could create deficits supporting oil prices. Given the favourable environment, I am opting for Suncor Energy (TSX: SU) as my second pick.
With the company already making a capital investment of $2.7 billion in the first two quarters, the Canadian integrated energy company expects to make further capital investments of $2.7–$3.1 billion in the remaining two quarters. Besides, the company is evaluating TotalEnergies’ Canadian operations for acquisitions. So, propelled by these growth initiatives and the expectation of higher realized prices, I believe Suncor Energy is well-equipped to deliver superior performance in the coming quarters. It also offers a quarterly dividend of $0.52/share and trades at an NTM price-to-earnings multiple of 10, making it an attractive buy.
WELL Health Technologies
WELL Health Technologies (TSX: WELL) is another stock that I believe is trading at attractive levels despite witnessing a 55% increase in its stock price this year. The digital healthcare company reported impressive fourth-quarter performance last week, as revenue grew by $170.9 million, representing a 21.8% increase from its previous year’s quarter. The digital health solutions provider had over 1 million patient visits during the quarter, while total patient interactions stood at 1.5 million.
Amid the topline growth, the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 16.2% to $22.3 million. However, adjusted net income fell from $17.5 million to $14.4 million. After reporting its second-quarter performance, the company’s management has announced that its 2023 revenue could come closer to the upper half of its earlier announced $740–$760 million range. Besides, its 2023 adjusted EBITDA guidance could grow by 10%.
Despite its solid financials and healthy growth prospects, WELL Health trades at 1.2 times analysts’ projected sales for the next four quarters, making it an attractive buy.
