3 Cheap TSX Stocks I’d Buy Before the Bull Market Arrives

Undervalued TSX stocks such as Savaria and BRP trade at a significant discount to consensus price target estimates.

| More on:
A bull outlined against a field

Image source: Getty Images.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Brp. The Motley Fool has a disclosure policy.

More on Investing

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Ready: 2 Stellar Stocks for Your Annual Contribution

Two high-yield stocks are ideal options if you plan to maximize your annual RRSP contribution limits and reduce taxable income.

Read more »

grow dividends
Dividend Stocks

3 Stocks That Could Be Easy Wealth Builders

Long-term investors would be wise to have these three Canadian stocks on their radar.

Read more »

Retirees sip their morning coffee outside.

Nearing Retirement? These Stocks Are as Cautious as They Come

These two blue-chip Canadian utility players can help buttress a retirement portfolio.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, February 28

TSX investors will keep a close eye on the quarterly U.S. gross domestic product growth numbers and more Canadian bank…

Read more »

question marks written reminders tickets
Dividend Stocks

Dividend Investors: Is BCE Stock a Buy Now?

BCE now offers a 7.9% dividend yield.

Read more »

A bull outlined against a field
Tech Stocks

Is a Bull Market Here? 4 Reasons to Buy Celestica Stock Like There’s No Tomorrow 

Celestica (TSX:CLS) stock has been a huge winner for investors this year, but there could be even more in the…

Read more »

Retirement plan

1 Retirement Savings Hack That Has Created Many Millionaires

Investors can retirement with $1 million in savings by investing in index funds such as the S&P 500.

Read more »

edit Taxes CRA
Dividend Stocks

CRA Money: 2 More Days to Boost Your Tax Refund!

Dividend stocks like Toronto-Dominion Bank (TSX:TD) can be great RRSP holdings.

Read more »