Revealed: 1 Canadian Utility Stock That Looks Severely Undervalued

Fortis (TSX:FTS) stock looks too cheap to ignore after enduring an underwhelming past year of performance.

| More on:
The sun sets behind a power source

Source: Getty Images

The Canadian utility scene has been under a lot of pressure in recent quarters, thanks in no part to elevated interest rates. Indeed, high rates have been quite a headwind for many firms, especially those with profits lying far into the future. For the utility plays, they have plenty of profits that investors can enjoy in the present. With hefty capital expenditures weighing some of them down, however, higher interest payments on debt are never ideal, especially if given growth rates within the utility sector aren’t exactly incredible.

Moving ahead, investors should give the undervalued utility stocks a bit more love as they look to move on from a rather uneventful past few years. Of course, not all utility companies have been fading — Hydro One (TSX:H) stock is one of the top dogs that’s left the rest of the sector behind in recent years. However, for the ones that are at or around 52- or multi-year lows, I believe there’s a huge window of opportunity for Canadian investors to get maximum bang for their buck while valuations are low and dividend yields are on the high side.

Fortis stock: Deep value in the utility scene?

At this juncture, I’m a big fan of Fortis (TSX:FTS) while it sports a dividend yield of around 4.5%. Undoubtedly, regulatory unknowns have continued to act against the firm. The company’s ITC transmission subsidiaries are subject to potential regulatory roadblocks that may persist for some time. Either way, I think such regulatory hurdles and limited growth prospects have already been baked into the share price for quite some time.

At the end of the day, you shouldn’t look at shares of Fortis as a means to grow your wealth at an above-average rate. As a utility play, it’s more of a way to stabilize your portfolio through even the rockiest environments. The company’s highly regulated cash flow stream makes the firm a pillar of stability when markets decide to nosedive. When euphoria and greed turn to fear, you’ll be glad you held onto shares of Fortis.

These days, the price of admission in the name seems to be quite low. When you can punch your ticket to a hot artificial intelligence play with positive momentum behind it, why settle for a lower-growth utility that has arguably one of the ugliest charts out there? Unless you’re a defensive dividend investor who has a nose for value, Fortis stock is probably too underwhelming a play to have atop your radar.

The Foolish bottom line on shares of Fortis

The stock goes for 16.8 times trailing price to earnings, which looks quite cheap given the earnings predictability you’ll get. Fortis won’t make you rich, but it can help you build wealth, stay rich, and perhaps give you a nice passive income raise every now and then. For a prudent investor, I’d argue that’s more than enough.

At just shy of $53 per share, Fortis looks like an untimely play. But one that patient investors may wish to continue to hold given its track record of holding (relatively) steady through the market’s darkest moments.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

More on Investing

alcohol
Tech Stocks

3 Magnificent Stocks That Have Created Many Millionaires, and Will Continue to Make More

Shopify stock is an example of a millionaire-maker stock that is likely to continue to thrive in the long run.

Read more »

Couple relaxing on a beach in front of a sunset
Investing

3 Stocks to Buy Now That Could Help You Retire a Millionaire

These three Canadian stocks are highly reliable and have tremendous long-term growth potential, making them some of the best to…

Read more »

hand using ATM
Dividend Stocks

Should Bank of Nova Scotia or Enbridge Stock Be on Your Buy List Today?

These TSX dividend stocks trade way below their 2022 highs. Is one now undervalued?

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

Why Hut 8 Stock is Up 44% in the Last Week

Hut 8 stock (TSX:HUT) has surged in the last week, and even more year to date. But if you think…

Read more »

Coworkers standing near a wall
Tech Stocks

Why Nvidia Stock Fell 10% Last Week

Nvidia stock (NASDAQ:NVDA) fell by 10% last week after its competitor announced an earnings date, but without preliminary results.

Read more »

A meter measures energy use.
Dividend Stocks

Here’s Why Canadian Utilities Is a No-Brainer Dividend Stock

Canadian Utilities stock is down 23% in the last year. Even if it wasn’t down, it is a dividend stock…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Got $5,000? Buy and Hold These 3 Value Stocks for Years

These essential and valuable value stocks are the perfect addition to any portfolio, especially if you have $5,000 you want…

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Magnificent Ultra-High-Yield Dividend Stocks That Are Screaming Buys in April

High yield stocks like BCE (TSX:BCE) can add a lot of income to your portfolio.

Read more »