Value investing is a good strategy for those who have the ability to identify companies trading at a discount to their intrinsic value. The ongoing volatility surrounding equity markets allows investors to go bottom fishing and buy shares of companies trading at a bargain.
The double whammy of interest rates and inflation has negatively impacted companies part of capital-intensive sectors such as infrastructure in addition to financial lending companies.
But every pullback should be viewed as an opportunity to buy quality stocks at a lower multiple. Here are two remarkably cheap or undervalued TSX stocks I’d buy right now.
Is goeasy stock a good buy today?
goeasy (TSX:GSY) operates in the non-prime lending space and is valued at $2.3 billion by market cap. It has originated over $12 billion in loans to more than 1.3 million Canadians to date through its portfolio of brands. It uses risk-based pricing, enabling customers to graduate to lower interest rates and reduce their borrowing costs over time.
In the last five years, goeasy has grown its adjusted earnings by 31.9% annually, while sales have increased by 19.6% each year in this period. goeasy has created massive wealth for shareholders in the last two decades, returning a whopping 4,000% in dividend-adjusted gains since December 2003.
Despite its outsized gains, GSY stock trades 36% below all-time highs, offering a dividend yield of 2.8%. Priced at 8.2 times forward earnings, GSY stock is very cheap and trades at a discount of 27% to consensus price target estimates.
Despite a sluggish macro environment, goeasy increased revenue by 13% year over year to $722 million in the third quarter (Q3). Its top-line growth was driven by a record volume of credit applications, soaring 30% in the quarter, leading to record loan originations across products and acquisition channels.
Its consumer loan portfolio stood at $3.43 billion at the end of Q3, rising 33% from $3.6 billion in the year-ago period. Additionally, goeasy’s net charge-off rate fell to 8.8% from 9.3% in the last 12 months, which was at the lower end of its forecast range.
goeasy’s stable credit performance reflects the improved credit and product mix of its loan portfolio and underwriting enhancements made in the past two years. Its allowance for future credit losses also narrowed to 7.37% in Q3 from 7.42% in Q2.
Is Brookfield Infrastructure stock undervalued?
Valued at $17 billion by market cap, Brookfield Infrastructure Partners (TSX:BIP.UN) is down 35% from all-time highs, as investors are worried about the company’s balance sheet debt, which totals $48 billion at the end of Q3.
The company owns and operates a diversified portfolio of assets across segments such as utilities, midstream energy, data centres, and transportation.
Brookfield Infrastructure increased its funds from operations by 7% to US$560 million in the September quarter as a significant of its cash flows are indexed to inflation as well as from its capital investment of US$1 billion in the past year.
Priced at 10 times future cash flows, BIP stock is available at a bargain and is forecast to surge around 60%, given consensus price target estimates.