Undervalued TSX stocks trading at a discount can help you generate outsized gains when market sentiment improves. Typically, cheap or value stocks trade at a price lower than their intrinsic value or at a steep discount to the broader markets.
Here are three such cheap TSX stocks you can buy below $20.
Well Health stock
A company operating in the health-tech space, Well Health (TSX: WELL) is valued at $915 million by market cap. Down 59% from all-time highs, WELL stock has returned over 3,700% to shareholders since its IPO (initial public offering) in April 2016.
Well Health reported record revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $204.5 million and $28.2 million in the third quarter (Q3), respectively. It surpassed 1.03 million patient visits in the quarter, achieving close to 1.6 million total care interactions, indicating an annual run rate of 6.32 million care interactions.
Well’s Canadian business continues to experience robust organic growth and profitability as it generated adjusted EBITDA of $12.3 million, up 24% year over year.
Due to its stellar results in Q3, Well upgraded its guidance and forecasts sales between $755 million and $765 million in Q3. It expects to exceed $900 million in annual revenue in 2024 with continued and sustained gains in EBITDA and cash flow.
Analysts remain bullish and expect WELL stock to more than double in the next 12 months.
Air Canada stock
Among the largest airline companies globally, Air Canada (TSX: AC) is valued at $6.2 billion by market cap. Air Canada and its airline peers were decimated amid COVID-19 as countries were shut down due to lockdown restrictions.
Airline companies are capital-intensive and had to raise significant debt to sustain their cash-burn rates in the last three years, making investors nervous. While economies reopened in 2022 and travel demand surged, the uptick in interest rates and higher fuel prices have acted as headwinds for Air Canada stock.
Priced at 3.8 times forward earnings, AC stock is really cheap. But it also ended Q3 with $14.4 billion in balance sheet debt.
Alternatively, analysts tracking Air Canada stock expect it to gain over 60% in the next 12 months.
Slate Grocery REIT stock
The third undervalued stock on my list is Slate Grocery (TSX: SGR.UN), a grocery-focused real estate investment trust (REITs). Similar to other REITs, Slate Grocery offers shareholders a tasty dividend yield of over 11%, making it attractive to income-seeking investors. Additionally, it trades at a discount of 30% to consensus price targets.
In Q3, Slate Grocery completed 691,421 square feet of total leasing. Moreover, new deals were completed at 18.4% above comparable average in-place rent and non-option renewals at 14.8% above expiring rents.
New leasing increased occupancy gains by 20 basis points to 94.1%, and the same-property net operating income continued to trend positively, rising 2% in the last 12 months.
Slate Grocery increased rental income by 4.6% year over year to $50.6 million in Q3. However, its adjusted funds from operations, or AFFO, fell over 10% to $13.06 million in the September quarter.
A narrowing bottom line and falling cash flows meant the company ended Q3 with a payout ratio of 99.6%, compared to 90.7% in the year-ago period.
