Equity investors faced challenges throughout 2023, led by economic uncertainty and a persistently high interest rate environment. Surprisingly, the economy has displayed greater resilience than anticipated. Meanwhile, the moderation in inflation indicates that interest rates could stabilize soon, giving a lift to stocks. Thus, this creates an opportunity for Canadians to capitalize on reduced share prices, particularly of select high-quality Canadian stocks and invest in them at a discounted valuation.
Notably, shares of several fundamentally strong TSX stocks are still trading at a discounted valuation, presenting an attractive buying opportunity. Therefore, for those planning a $1,000 investment, December 2023 is an opportune time to consider acquiring shares in two noteworthy Canadian corporations. Let’s delve into the stocks.
goeasy
Trading at the next 12-month price-to-earnings multiple of 8.4 and consistently growing its sales and earnings at a solid double-digit rate, goeasy (TSX:GSY) stock is too cheap to ignore and a buy right now. In addition, the company is a Dividend Aristocrat, implying it has consistently increased its dividend for five years or more, making it a solid stock for investors seeking a growing passive-income stream.
Notably, goeasy is Canada’s leading non-prime consumer lender. Thanks to its leadership in the non-prime lending space and solid demand, goeasy’s revenue sports a five-year compound annual growth rate (CAGR) of 19.62%. Its EPS (earnings per share) growth is even more attractive, which reflects a CAGR of 31.85% during the same period.
The company’s success reflects its ability to drive loans and solid underwriting skills. goeasy’s loan originations increased 15% year over year in the first nine months of 2023. During the same period, its consumer loan receivable portfolio jumped 33% year over year to $3.43 billion. goeasy’s efficiency ratio improved by 320 basis points to 30.9% in the nine months of 2023, reflecting stable credit and payment performance and operating leverage. Moreover, its EPS increased by 20%.
goeasy will likely deliver solid sales and earnings growth in the coming years, led by the expansion of its loan portfolio, steady credit performance, and improving efficiency ratio. Further, the large addressable market will support its growth. Besides capital gains, investors will benefit from the company’s ability to consistently increase its dividend payments. Overall, goeasy is a high-growth stock offering regular income and significant value near the current levels.
Aritzia
Aritzia (TSX:ATZ) stock has dropped about 46% year to date. This significant correction in its share price reflects a deceleration in its growth rate, led by its inability to introduce fresh and innovative products and tough year-over-year comparisons. Further, pressure on consumers’ discretionary spending due to macroeconomic headwinds remained a drag.
Investors should note that this notable drop in Aritzia stock has lowered its valuation, providing a good entry point near the current levels. Also, the company is now operating in a normalized supply-chain environment and focusing on creating and introducing new styles, which could boost its financials and share price. What stands out is that Aritzia has retained its medium-term sales growth outlook, implying its top-line growth will likely accelerate in coming quarters, which supports my bull case.
Notably, Aritzia expects its revenue to increase at a CAGR of 15-17% through fiscal 2027, which appears achievable due to the acceleration in new boutique openings. Its new boutiques continue to perform well and have a low payback period. Moreover, the strength of its e-commerce business and its focus on pricing, cost reduction, and opening its new distribution centre will support its revenue and margins. Overall, Aritzia stock is a compelling long-term pick, trading at a low valuation.
