The ongoing correction in the equity markets has dragged valuations of blue-chip stocks lower in recent months. However, it allows investors to buy the dip and gain exposure to fundamentally strong businesses.
Here are three oversold TSX index stocks that should be on your shopping list in 2023.
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Is Nutrien stock a good buy?
Nutrien (TSX: NTR) was born out of the merger between giants such as Potash Corp and Agrium at the start of 2018. The big-ticket merger created the largest fertilizer company in the world, which also produces potash, nitrogen, and phosphate. Additionally, Nutrien has a retail-focused business that supplies seed and crop protection products to farms globally.
Its low-cost fertilizer operations allow Nutrien to generate strong cash flows across business cycles, while a diversified retail business enhances the stability of its earnings. Nutrien has a track record of balanced and disciplined capital allocation, as it generated $21 billion in operating cash flows between 2018 and 2022.
Down 44% from all-time highs, Nutrien stock offers shareholders a dividend yield of 3.7%. In 2023, the company expects operating cash flows to range between $4.4 billion and $4.9 billion. It aims to spend $400 million on acquisitions, $1.1 billion in investments, $1.7 billion in organic growth, $1 billion in share buybacks, and $1 billion in dividends.
Priced at 10.5 times forward earnings, Nutrien stock trades at a discount of 34% to consensus price target estimates.
Is Barrick Gold stock undervalued?
One of Canada’s largest gold mining companies, Barrick Gold (TSX: ABX) is a top choice for those looking to diversify their portfolios. Gold is viewed as a store of value and a hedge against inflation, making mining stocks such as Barrick Gold enticing buys right now.
There are several catalysts for gold prices right now. First, geopolitical tensions should act as a tailwind for gold. Second, interest rates and gold prices have an inverse relationship. It’s likely that interest rate hikes are about to end as the global economy remains sluggish. Finally, the threat of a recession might result in another stock market selloff, pushing gold prices higher.
Mining companies such as Barrick Gold benefit from higher operating leverage when gold prices surge higher. Due to its asset-light balance sheet and lower interest expenses, Barrick Gold has increased adjusted earnings by 20% annually in the last five years.
Down 41% from all-time highs, Barrick Gold stock is priced at 19.6 times forward earnings, which is reasonable. The TSX stock trades at a discount of 38% to consensus price target estimates.
What is the target price for BMO stock?
The final undervalued TSX stock on my list is Bank of Montreal (TSX: BMO), down 32% from all-time highs. But the pullback indicates BMO offers shareholders a tasty dividend yield of 5.6%.
Bank stocks, including BMO, are trailing the broader markets due to a tepid lending environment, higher provision for credit losses, and rising delinquency rates. But TSX banks such as BMO are armed with strong balance sheets and robust liquidity, allowing them to navigate an uncertain environment.
Priced at 8.8 times forward earnings, BMO stock trades at a discount of 25% to its average price target.
