The ongoing market volatility allows investors to identify value stocks trading at a bargain. Typically, value stocks trade at a discount to their intrinsic value, allowing investors to benefit from outsized gains when market sentiment recovers.
Here are three such cheap TSX stocks you can buy today for a big profit in five years.
Hydro One stock
Down 16% from all-time highs, Hydro One (TSX: H) is valued at a market cap of $20.5 billion. The recent pullback in share prices has increased the stock’s dividend yield to $3.4%, making it attractive to income-seeking investors as well.
Hydro One offers investors the opportunity to gain exposure to a premium large-scale regulated electric utility that generates cash flows across market cycles. The company operates as an electricity transmission and distribution company in Ontario.
Hydro One is among the largest electrical utilities in North America, with a leadership position in Ontario. Armed with an investment-grade balance sheet, Hydro One operates in a stable, transparent, and rate-regulated environment. It provides a unique combination of electrical transmission and local distribution with no power-generation assets.
It has a target payout ratio of less than 80%, which provides it with opportunities for earnings growth with rate base expansion. Priced at 19 times forward earnings, Hydro One trades at a discount of 12% to consensus price target estimates.
RioCan REIT stock
Real estate investment trusts (REITs) such as RioCan (TSX: REI.UN) have been pummeled in recent trading sessions, as investors are wary of rising interest rates. Generally, REITs take on debt to fuel their expansion plans. As the cost of debt has risen significantly in the last 18 months, RioCan stock is trading 25% below its 52-week high.
RioCan pays shareholders an annual dividend of $1.08 per share, indicating a yield of 6%. Priced at 11 times forward earnings, the TSX stock is forecast to more than double adjusted earnings to $1.64 per share in 2023.
RioCan’s quality portfolio allows it to enjoy high occupancy rates, leading to strong leasing spreads. Moreover, its development completions ensure its income streams continue to diversify. Analysts remain bullish and expect the stock to surge 34% in the next 12 months.
GFL Environmental stock
GFL Environmental (TSX: GFL) offers non-hazardous solid waste management and environmental services in Canada and the United States. These services include collection, transportation, transfer, recycling, and disposal services for municipal, residential, commercial, and industrial customers.
GFL Environmental went public in early 2020 and has since doubled shareholder returns. Down 19% from all-time highs, GFL is valued at $16 billion by market cap.
Despite a challenging macro environment, GFL increased sales by 13.8% year over year to $1.94 billion. Comparatively, adjusted earnings before interest, tax, depreciation, and amortization were up 19.3%, showcasing the effectiveness of its pricing and efficiency initiatives.
GFL’s top-line growth and margin expansion demonstrate the company’s pricing power and recession-resistant nature.
In the second quarter of 2023, GFL realized $1.65 billion of gross proceeds from the sale of non-core assets, which was used to de-lever its balance sheet, allowing it to end the quarter with a net leverage ratio of 4.18 times — the lowest level in its history.
