While equity markets remain volatile, the broader indices have staged a remarkable comeback in 2023. Investors were worried about rising interest rates, inflation, elevated oil prices, geopolitical tensions, and sluggish consumer spending at the start of the year. Despite these macro headwinds, the TSX index has gained over 3% in the past month and close to 4.5% year to date. Moreover, the S&P 500 index reported one of its best months in November 2023, rising over 8%.
The recent recovery in stocks indicates that it is extremely difficult to time the market. Instead, buying undervalued stocks at regular intervals is a proven strategy for building long-term wealth. Keeping these factors in mind, here are three cheap TSX stocks I’d buy before the next bull market arrives.
Savaria stock
Valued at $1.06 billion by market cap, Savaria (TSX: SIS) has already created massive wealth for shareholders, rising over 1,400% in the past two decades after adjusting for dividends. Despite its outsized gains, the TSX stock offers shareholders a dividend yield of 3.6%.
Savaria is fairly recession resistant and provides accessibility solutions for the physically challenged. It designs, manufactures, distributes, and installs accessibility equipment, including stairlifts and elevators for home and commercial use.
Savaria reported revenue of $210 million in the third quarter (Q3), an increase of 9 % year over year. It ended the quarter with a gross margin of 34.5% and an EBITDA (earnings before interest, tax, depreciation, and amortization) margin of over 16%.
The company recently raised $92 million via a public offering providing it with the flexibility to target accretive acquisitions and expand its product portfolio. Savaria aims to end 2025 with $1 billion in annual sales, which should enable it to raise dividends further on the back of consistent earnings growth.
Priced at 18.6 times forward earnings, SIS stock is quite cheap and trades at a discount of 29% to consensus price target estimates.
Sleep Country Canada stock
Down 42% from all-time highs, Sleep Country Canada (TSX: ZZZ) offers you a dividend yield of 3.9%. The company is engaged in the engaged in the retailing mattress segment and is valued at $853 million by market cap.
Sleep Country increased sales by 4.7% to $255.7 million in Q3 while gross margin rose to 39.7%, up from 38.5% in the year-ago period. Moreover, e-commerce sales accounted for 20.4% of total revenue, an increase of 190 basis points year over year.
Sleep Country Canada has showcased its pricing power and continues to navigate an uncertain macro environment. The TSX stock is priced at 10 times forward earnings and trades at a discount of 10.6% to consensus price target estimates.
BRP stock
The final cheap TSX stock on my list is BRP (TSX: DOO), a company that manufactures power sports products, propulsion systems and boats. It has increased sales by 10.3% to $7.67 billion in the last three quarters, while operating cash flows have almost tripled to $1.05 billion.
BRP’s cash flows rose due to higher profit margins and favourable changes in working capital, allowing it to invest $352.5 million in capital expenditures, expanding its production capacity in the process.
Priced at seven times forward earnings, DOO stock trades at a discount of 35% to consensus price target estimates.
