The time is ripe to buy quality, oversold Canadian stocks trading at a discount. As central banks are forecast to cut interest rates multiple times in 2024, several TSX stocks are positioned to deliver outsized gains in the next 12 months.
Here are two such oversold Canadian stocks you can consider buying right now.
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Gildan Activewear stock
Valued at $7.5 billion by market cap, Gildan Activewear (TSX:GIL) stock trades 21% below all-time highs, raising its dividend yield to 2.3%. A leading manufacturer of everyday basic apparel, Gildan sells its products to customers via a network of retail stores as it continues to gain traction on e-commerce platforms.
It owns and operates vertically integrated, large-scale manufacturing facilities located in Central America, the Caribbean, North America, and Bangladesh. Gildan is among the most recognizable brands in Canada, allowing it to maintain a strong competitive position amid a challenging macro environment.
In the third quarter (Q3) of 2023, Gildan delivered net sales of $870 million, an increase of 2% year over year. It ended Q3 with an operating margin of 18.3% as operating cash flows stood at $305 million with free cash flows of $265 million.
Given its quarterly dividend of $0.25 per share, Gildan has a payout ratio of less than 20%, providing it with the flexibility to strengthen its balance sheet and reinvest in growth projects. Moreover, Gildan Activewear has raised dividends by 17% annually in the last 10 years.
Gildan Activewear ended Q3 with a net debt of $1.01 billion and a leverage ratio of 1.6 times net debt to EBITDA (earnings before interest, tax, depreciation, and amortization), which is reasonable.
Priced at 10.9 times forward earnings, Gildan stock is very cheap and trades at a discount of 18.6% to consensus price target estimates.
Saputo stock
Valued at $11 billion by market cap, Saputo (TSX:SAP) is among the top 10 largest dairy processors globally, with leading market positions in Canada, the U.S., Argentina, Australia, and the United Kingdom. Down 46% from all-time highs, Saputo also offers shareholders a dividend yield of 2.8%, given it pays an annual dividend of $0.74 per share.
With 66 processing facilities, Saputo sells its products in more than 60 countries, allowing it to generate $17.8 billion in sales in fiscal 2023 (ended in March).
Saputo went public in 1997 with a consolidated revenue of $450 million. In the last 26 years, its sales have grown by 15% annually on the back of organic growth and accretive acquisitions. Since its initial public offering, Saputo has acquired 36 companies and invested $9.3 billion to expand operations in key markets.
Around 48% of sales are generated from retail businesses, which include supermarkets, convenience stores, and independent retailers. Restaurants, hotels, and broad-line distributors account for 33% of sales, while the rest is generated by manufacturers who use Saputo’s daily ingredients for further processing.
Priced at 16 times forward earnings, Saputo stock is cheap and trades at a discount of 23% to consensus price target estimates. Further, analysts expect adjusted earnings to rise by 22% annually in the next five years, which should support dividend hikes in the future.
Saputo has tripled its dividend payouts in the past 15 years, enhancing your effective yield significantly.
