The Canadian equity markets have rebounded strongly since the beginning of the fourth quarter, with the S&P/TSX Composite Index rising over 6.8%. Despite the strong recovery, few companies continue to trade at a discount compared to their recent highs, thus offering excellent buying opportunities. Here are three of my top picks that trade at an attractive valuation.
Telus
The telecom sector is a capital-intensive business. So, the sector, including Telus (TSX: T), has been under pressure over the last few years amid rising interest rates. The Vancouver-based company has lost around 25% of its stock value compared to its 2022 highs. The steep correction has dragged its valuation down to attractive levels, with its NTM (next 12-month) price-to-sales multiple at 1.7.
Meanwhile, digitization has increased the demand for telecommunication services, thus expanding the company’s addressable market. Telus is focusing on strengthening its 5G and broadband infrastructure to capture the rising demand. It recently acquired additional licenses across Canada for $620 million, allowing it to expand its 5G services to cover 96% of the population.
Its growth segments, the Health Services segment and Agriculture and Consumer Goods segment, could continue to grow at a healthier rate, thus boosting its financials in the coming quarters. Further, Telus also pays a quarterly dividend of $0.3761/share, with its forward yield at 6.22%, making it an attractive buy.
TC Energy
Another cheap stock that I am bullish on is TC Energy (TSX: TRP), which transports oil and natural gas across North America. The midstream energy company has lost around 22% of its stock value compared to its 2022 highs. Higher interest rates and weak performances caused the company’s stock price to fall. Amid the pullback, the company’s NTM price-to-earnings multiple has declined to an attractive 13.
Meanwhile, the Calgary-based company has planned to invest around $8-$8.5 billion this year and $6-$7 billion yearly until 2026. The company is working on achieving debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) of 4.75 by the end of this year. It has sold its stake in Columbia Gas and Columbia Gulf Transmission, generating $5.3 billion. Further, the company continues its asset sale activities and expects to generate $3 billion this year. Given its improving financial position and healthy growth prospects, I believe TC Energy is well positioned to continue with its dividend growth.
Meanwhile, TC Energy has raised its dividend uninterruptedly since 2000 at a CAGR (compound annual growth rate) of 7%. Its forward dividend yield currently stands at 7.24%. Considering all these factors, I am bullish on TC Energy.
Lightspeed Commerce
Lightspeed Commerce (TSX: LSPD), which offers omnichannel solutions to small- and medium-scale businesses, is my final pick. It has witnessed healthy buying since the beginning of the fourth quarter. Its stock price has increased by 35%. Despite the recent increases, it trades at a discount of around 85% compared to its all-time high. Also, its price-to-book multiple stands at an attractive 1.2.
Meanwhile, the company’s Unified Payments initiative, which embeds its payment solutions directly into POS (point of sale), has resonated with its customers. In the September-ending quarter, the company’s gross transaction value stood at $5.9 billion, with around 25% processed through its payments platform. The company is launching innovative products and expanding its payment platform geographically, which could boost its financials in the coming quarters.
Notably, the Montreal-based technology company has taken several initiatives to improve its profitability, which led it to post its first positive adjusted EBITDA in November. Considering its improving financials, healthy growth prospects, and discounted stock price, Lightspeed Commerce would be an excellent buy at these levels.
