The economy turned out to be more resilient than many forecasted, giving a significant boost to the equity market. Thanks to the easing inflation and expected stabilization in interest rates, several Canadian stocks recovered swiftly, generating substantial returns year to date. However, several fundamentally strong Canadian stocks trade at a discounted valuation and offer significant value near current price levels. However, these stocks won’t be on sale for long.
So, for investors looking to buy top-quality stocks on sale, here are my three top picks.
goeasy
goeasy (TSX:GSY) stock is too cheap to ignore near the current price levels. The company provides loans to subprime borrowers and has been growing its revenue and earnings at a solid pace. Investors should note that goeasy’s top line grew at a CAGR (compound annual growth rate) of 17.7% in the past decade. During the same period, its earnings increased at a CAGR of 29.5%.
While the company’s earnings are growing at a double-digit rate, shares of the subprime lender are trading at a next-12-month (NTM) price-to-earnings multiple of eight, making it undervalued on the valuation front. Furthermore, the company is a Dividend Aristocrat, offering a decent yield of over 3.2% (based on its closing price on September 14).
Besides offering significant value and decent yield near the current levels, goeasy is poised to deliver massive capital gains in the coming years. Its high-quality loan originations, stable credit performance, and operating leverage will drive solid sales and earnings growth and support its share price.
WELL Health
Like goeasy, shares of the digital healthcare company WELL Health (TSX:WELL) appear attractive near the current price levels. Despite headwinds from tough year-over-year comparisons and economic reopening, WELL Health continues to generate solid growth. Moreover, it has turned profitable, which is encouraging.
The company continues to benefit from the momentum in the omnichannel patient visits. Further, the ongoing strength in its high-margin virtual healthcare services business bodes well for future earnings growth. Also, its investments in artificial intelligence and accretive acquisitions will accelerate its growth and help expand its addressable market.
WELL Health stock is up about 55% year to date. Despite this appreciation in value, it is trading incredibly cheap. WELL Health stock is trading at the NTM enterprise value-to-sales ratio of 1.7, which is significantly lower than its historical average, making it a compelling buy near the current levels.
Lightspeed
Lightspeed (TSX:LSPD) is the final stock on this list. The company has been consistently generating solid growth. However, its stock is trading cheap at the NTM enterprise value-to-sales multiple of 1.7, making it attractive on the valuation front.
While Lightspeed stock is trading cheap, it is poised to benefit from the ongoing shift in selling models toward omnichannel platforms. Furthermore, the commerce-enabling company’s focus on high-value customers and streamlining of operations augurs well for growth.
Looking ahead, Lightspeed will benefit from its high-value customer base, increase in average revenue per user, and higher spending on technology advancements by restaurant operators and retailers. Further, its low valuation supports my bull case.
