Last week, the Bureau of Economic Analysis announced that the United States’s consumer price index rose 2.8% in January, which aligns with economists’ projections. Meanwhile, personal income rose 1%, higher than the analysts’ forecast of 0.3%. These positive numbers have improved investors’ sentiments, increasing Canadian equity markets. Year to date, the S&P/TSX Composite Index has risen by 2.83%. Despite the increase in broader equity markets, few TSX stocks are still trading at attractive valuations, making them excellent buys.
Here are my three top picks.
Cargojet
Cargojet (TSX:CJT) is a Canadian company that offers time-sensitive overnight air cargo services to prominent cities in Canada and other countries. Amid the challenging macro environment, consumer spending has declined, weighing down the company’s financials and stock price. It has lost over 55% of its stock value compared to its all-time high and is down 5.8% this year. The changing macros environment has prompted the company to shift its focus from growth towards fleet optimization, cost reduction, and improving productivity.
Amid these initiatives, its SG&A (selling, general, and administrative) expenses and net finance cost have declined by 24% and 21% in the December-ending quarter, respectively. Also, the company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin improved by 5.8% to 36.8%. Cargojet’s management expects the international cargo market to be soft in the near to medium term. So, it is optimizing its capital expenditure and has planned to make a net capital expenditure of $60-$80 million this year and $160-$180 million in 2025.
Further, its diversified customer base and long-term contracts stabilize the Mississauga-based cargo airline’s financials. Amid the recent selloff, the company’s NTM (next-12-month) price-to-sales multiple has also declined to two. So, despite the near-term weakness, I believe Cargojet would be an excellent long-term buy.
TC Energy
Another value stock I am bullish on is TC Energy (TSX:TRP), which trades at an NTM price-to-earnings multiple of 13.1 and offers an impressive dividend yield of 7.12%. Last month, the midstream energy company reported a solid fourth-quarter performance, with its adjusted EBITDA and adjusted EPS (earnings per share) growing by 15.8% and 21.6%, respectively. The company put $5.3 billion of projects into service last year, thus expanding its asset base.
The Calgary-based energy company has planned to put around $7 billion of projects into service this year and $9 billion next year. Amid these growth initiatives, the management expects its adjusted EBITDA to grow at a CAGR (compound annual growth rate) of 6% through 2026, excluding the contributions from its liquids pipeline segment. The company is working on spinning off its liquids pipeline segment to enhance shareholder value.
Given its growth prospects, TC Energy, which has raised its dividends for the previous 24 years, could continue its dividend growth. So, I believe TC Energy would be an ideal buy right now.
Lightspeed Commerce
My final pick is Lightspeed Commerce (TSX:LSPD), which offers omnichannel commerce solutions to businesses. Although the Montreal-based company posted solid third-quarter earnings, which ended on December 31, it has been under pressure this year due to the management’s cautious outlook. The declining consumer spending and the unpredictable pace of the adoption of unified payments in international markets have caused the company to be cautious in the near term.
However, the recent selloff has dragged its valuation down to attractive levels, with its NTM price-to-sales and price-to-book multiples at 2.1 and 0.9, respectively. Small- and medium-scale businesses are adopting an omnichannel selling model, creating a long-term growth potential for the company. The launching of the Unified Payments initiative has resonated with customers through increased adoption and driving of gross payment volume as a percentage of the gross transaction value. So, I believe Lightspeed is an excellent buy at these levels.
