After a challenging September, the global equity markets have continued their downtrend, with the S&P/TSX Composite Index declining by around 2.8% this month. Rising Treasury yields amid concerns over the recent comment from Federal Chairman Jerome Powell, which suggested that the Federal Reserve could continue its monetary tightening measures, have led to a decline in the equity markets. However, the selloff has provided excellent buying opportunities in the following three TSX stocks that are trading at attractive valuations.
Telus
With interest rates rising, capital-intensive businesses, including the telecom sector, are under pressure. Amid the weakness, Telus (TSX:T) has lost around 10% of its stock value this year. However, the correction offers an excellent buying opportunity, as telecommunication services are becoming essential in this digitally connected world. The high initial investment has created an entry barrier for new players while allowing existing players to enjoy healthier margins.
Amid the growing telecommunication services demand, Telus continues expanding its 5G and broadband infrastructure. At the end of June 30, its 5G network covered 84% of the company’s population, while 3.1 million locations had pure fibre networks. Its high-growth business segments, Health and Agriculture and Consumer Goods, could continue to boost its financials in the coming years.
Supported by its stable cash flows, the telecom company has raised its dividend for the previous 20 years, with its forward yield currently at 6.50%. Also, amid the recent selloff, Telus trades at 1.6 times its projected sales for the next four quarters, making it an attractive buy for long-term investors.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is another stock that has been under pressure over the last few months. Amid the rising interest rates, investors are worried that global growth could slow down and even lead to a recession, thus dragging its stock price down. It has lost around 11% of its stock value this year while its NTM (next 12-month) price-to-earnings multiple has declined to 7.9.
Meanwhile, the selloff offers an excellent entry point for long-term investors. The financial services company is streamlining its operational processes amid digitization, automation, and changes in customers’ banking preferences, which could lead to a 3% reduction in its workforce. This initiative could lead to a restructuring and severance expenses of $247 million. However, the company could reap the full benefits of this initiative from fiscal 2025.
Although its net income declined by 13% in the July-ending quarter, BNS’s capital and liquidity metrics improved. Its CET 1 (common equity tier-one) capital ratio improved from 11.4% to 12.7%, while its LCR (liquidity coverage ratio) stood at 133%, an improvement from 122% in the previous year’s quarter. Amid improving operating metrics, attractive valuation, and a high dividend yield of 7.55%, I am bullish on Bank of Nova Scotia.
Pizza Pizza Royalty
Amid the weakness in the broader equity market, Pizza Pizza Royalty (TSX:PZA) has lost around 14% of its stock value compared to its August highs. Meanwhile, given its stable cash flows and healthy growth prospects, the pullback offers an excellent buying opportunity. Thanks to its highly franchised business model, the company’s financials are immune to rising prices and wage inflation.
Further, the company has been focusing on menu innovations and promotional activities that are resonating with its customers. Its same-store sales grew 11.4% in the first two quarters, driving its financials. Supported by solid cash flows, the company has raised its quarterly dividends seven times since 2020, with its forward yield currently at 6.77%. The company trades at an attractive NTM price-to-earnings multiple of 13.7, making it an attractive buy. Considering all these factors, Pizza Pizza Royalty would be an excellent value buy in this volatile environment.
