TFSA (Tax-Free Savings Account) investors are fortunate to get an additional $7,000 of contribution space in 2024. If you have the cash and are looking for some undervalued TSX stock ideas, here are four stocks in different sectors to consider adding in February.
A TSX software stock
Enghouse Systems (TSX: ENGH) has had a rough go over the past five years. Its stock soared 100% during the pandemic. It has now pulled back to the point where it only has a 6% stock gain over that period.
Now, total returns are not entirely that bad. The company had a massive surge in demand and earnings through the pandemic. It paid a special $1.50-per-share dividend on top of the $2.70 of base dividends it has paid since 2020.
The company is sitting with $230 million of cash and no debt. It has made several small acquisitions in recent years, but it is primed to really accelerate its mergers and acquisition strategy.
It is trading at the low end of its historic valuation range. This TSX stock could really re-rate if it can start putting its cash pile to work. It yields a 2.3% dividend while you wait.
A diversified stock
Another TSX stock that could see a potential re-rating in 2024 is Calian Group (TSX: CGY). Over the past five years, the company has reaccelerated its growth profile.
The company has grown revenues and EBITDA (earnings before interest, tax, depreciation, and amortization) by respective 17% and 24.5% compounded annual growth rates (CAGRs).
It operates a diversified mix of businesses focused on satcom, training/simulation, healthcare, and cybersecurity and IT. This helps offset volatility across its portfolio and provides multiple aspects for organic and acquisition growth.
The company had a slight misstep last year that saw the stock fall considerably. However, the company is positioned for double-digit growth ahead. The market hasn’t recognized it, and this TSX stock is trading at an affordable 12 times forward earning today.
A beaten-up retail stock
While all these picks are valuation plays, BRP (TSX: DOO) is the contrarian pick. Like the Enghouse, BRP saw a surge in demand as interest rates came crashing down during the pandemic. It helped propel record revenue and earnings.
Demand has slowed, with interest rates rapidly increasing. The company had to revise its outlook several times. While business has slowed, it has slowed for the whole segment. Despite this, BRP has consistently been taking market share from its major competitors.
2024 might be a volatile year, but 2025 could see this stock recover very nicely. The company will likely take its beaten-down valuation to buy back a lot of stock. As a result, earnings could seriously surge once demand normalizes again.
A TSX real estate stock
A final stock pick for more of an income play is BSR Real Estate Investment Trust (TSX: HOM.U). BSR operates a very high-quality portfolio of garden-style multi-family properties in Texas, Arkansas, and Oklahoma.
Like the other stocks above, this TSX real estate stock saw a surge in demand as people flocked to the southern sunbelt states over the pandemic. Its properties are in some of the highest economic and population growth regions in the U.S.
The REIT is very well-positioned in the long term. It has a conservative balance sheet, very good, well-located assets, and a talented management team. This TSX stock earns a 4.4% distribution yield. If interest rates moderate down, this stock could enjoy a substantial recovery in 2024.
