When looking for good deals in the stock market, undervalued stocks usually jump out from the rest. It’s an instinct to want to buy something that’s trading below its intrinsic value. Still, it’s also natural to be wary of such deals, especially if the undervaluation is grounded in factors that are difficult to identify or could have a long-term negative impact on the performance of the stock and its return potential.
There are at least three value stocks that you may consider buying and holding long term.
A power-generation company
Capital Power (TSX: CPX) is a Toronto-based power-generation company with a portfolio of 30 facilities across North America, including wind, solar, and gas-based facilities. The bulk of its operational assets are in Canada, and natural gas still dominates the power production mix, but the renewable slice is growing at a reasonable pace. The total production output is 7.6 gigawatts.
The company is financially healthy and has a promising dividend stock with a hefty 6.5% yield. The payout ratio is relatively healthy, and if we add its long-term dividend-growth streak into the mix, the dividends also become very sustainable. The stock is currently trading at a 26% discount and an attractive value, which may amplify its capital-appreciation potential.
An energy stock
While many energy stocks in Canada are attractively valued right now, thanks to the post-pandemic bullish momentum that’s just now waning, Parex Resources (TSX: PXT) stands out from its peers for several reasons.
The first is that it operates almost exclusively in Colombia, and it’s the country’s largest independent oil and gas producer. This gives it dominance in the market, despite being a minor player in the Canadian energy sector (based on its market cap).
This also shields it from market forces that may negatively impact other Canadian energy stocks. That’s one of the reasons why it was one of the quickest to recover after the 2014 slump in the energy sector. It has also displayed decent long-term growth potential, and its market value has increased by 200% in the last 10 years.
It’s pretty attractively valued right now with a price-to-earnings ratio of just three, and since it’s also discounted, the yield has jumped up to 6.9%.
A financial services company
Guardian Capital Group (TSX: GCG.A) is a financial services company. The primary service they offer to their clients is investment management, but they also generate revenue from corporate activities and investments.
About 21% of the investment portfolio comprises Bank of Montreal shares, while the rest is in short-term and proprietary liquid securities. This makes it different from other asset management companies from a business model perspective.
Even though the company has been a healthy dividend payer for quite some years, its growth potential and undervaluation make it attractive to most investors. The stock has risen over 160% in the last 10 years, and if we add in the dividends, the overall returns rise to 228% for the period.
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Foolish takeaway
The three value stocks would be an excellent way to park your $5,000 capital/savings. All three are dividend stocks, and two are currently discounted, which may add some recovery-based growth potential over the three stocks’ long-term growth potential.
