If you are looking for cheap stocks, Canada isn’t such a bad place to look. High quality businesses in Canada can often trade at discounts compared to similar U.S. peers. As a result, Canadians can buy into them before they become internationally recognized.
You might need to be patient and think long term, but you can do well looking for cheap stocks that could re-rate to the upside. Here are three Canadian stocks that could do that in 2024.
A beaten down (but not broken down) tech stock
Enghouse Systems (TSX: ENGH) used to be a top growth stock in Canada. As of late, returns have been a tad more mediocre. The company saw massive success during COVID-19 as customers flocked to use its array of communications software. Those sales have since pulled back as has the stock.
Yet, that is where the opportunity is. Enghouse has been generating a serious amount of cash over the past few years. It has over $240 million of net cash on its balance sheet. The market is waiting for it to put that cash to work in acquisitions.
Until it does, this stock is only trading for 13 times free cash flow. That is low for a tech stock (even in Canada). With a yield of 2.5%, investors get a nice (and growing) dividend while they wait.
An undervalued insurance stock
Trisura Group (TSX: TSU) is another little known Canadian stock trading under the market’s radar. Trisura provides speciality insurance in Canada and the U.S. It also has an insurance fronting business that is growing at a nice clip.
It too is a little beaten up. Last year, it faced a significant write-down in an insurance program. That temporarily affected results for the year.
The good news is most of that is behind it in 2024. It continues to drive strong operating returns on capital, and 2024 could be primed for a solid growth year.
Trisura trades at a severe discount to other speciality insurance and fronting providers in the U.S. At 15 times earnings, Trisura is near its lowest valuation in the past seven years.
A top energy stock at an attractive price
Tourmaline Oil (TSX: TOU) is one of Canada’s best energy producers. However, it is trading down because natural gas (its main commodity) has been trading in the dumps.
While this isn’t ideal, the company can still generate decent cash flow at today’s prices. It sells its gas to some of the highest priced markets in the world. Likewise, its low-cost, long-life asset structure enables it to quickly manage costs and preserve profitability.
Tourmaline is still committed to return most of its free cash flows back to shareholders. It just increased its base quarterly dividend by 7% to $0.30 per share. Likewise, it announced a $0.50 per share special dividend.
The company has been pumping out variable dividends while consistently growing its base dividend. It yields 2% today.
Tourmaline stock only trades with a price-to-earnings ratio of 9 times. While natural gas prices are depressed, it is a perfect time to pick up the high-quality, well managed energy stock.
