When it comes to finding undervalued stocks, it seems to me like we’re wading through a lot of noise. One company could be trading at all-time highs, and yet there are people discussing the company like it’s undervalued. Another stock might have fallen by 20% over the last two years but climbed up 30% in the last few months. Yet, it remains off the radar.
That’s why today, I’m going to discuss my favourite top five undervalued stocks that investors should buy now. These are in beaten-down sectors that are due to recover. And the best of the best should rise right back to the top.
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Financials
Financial companies are some of the most undervalued stocks right now, with Canadian banks still in that category. Rising interest rates can benefit banks, it’s true. However, recent aggressive rate hikes have scared investors from getting into banks out of fear of a recession and loan defaults.
Some banks have also gone through poor earnings results and missing estimates. Yet, of them, there are two that have beaten the batch. That’s Royal Bank of Canada (TSX: RY) and Bank of Nova Scotia (TSX: BNS).
Both of these banks have actually seen shares rise higher after earnings. That’s thanks to healthy financials with enough provisions set aside for loan losses without the need to add much more. Furthermore, there is room for even more growth after the economic slowdown is over. What’s more, both banks offer high dividends. BNS stock offers a 6.3% dividend and RY stock at 4.09%, both higher than their average over the last few years.
Industrial stocks
There is also some cash to be made among industrial stocks, though not all of them. Some have proven to do quite well, while others have been hit hard by this economic uncertainty. That’s because industrial stocks can be cyclical, tied to the overall health of the economy.
Furthermore, some companies have experienced higher input costs from materials and transportation. These rising costs can squeeze profit margins, sending earnings and shares lower. However, investors have been ignoring the potential rebound of this sector, especially for those in transportation and infrastructure.
That’s why I see Cargojet (TSX: CJT) and Granite REIT (TSX: GRT.UN) as strong options. Cargojet stock has fallen from higher costs and lower shipping. But once inflation and interest rates come down, it’s likely to rebound. What’s more, it’s cut costs to see profit margins soar when the market rebounds.
Granite REIT meanwhile has done quite well, providing industrial properties that continue to pop up across North America. In fact, it’s climbing back to 52-week highs. So, I would grab the dividend yield of 4.38% while you can and look forward to more stable growth.
Communications
Finally, the communication sector has also seen a huge drop. But honestly, there are a lot of reasons behind this. First off, the communication industry got a huge boost during the pandemic, making it all but impossible to keep up with. Then a merging industry has put pressure on companies to perform.
Yet, this is a mature industry with a high level of network penetration. This limits growth opportunities from other smaller companies and even tech stocks, especially for the cost it would take to create the infrastructure necessary.
This is why if you’re looking for another investment right now, Quebecor (TSX: QBR.B) could be a strong option. The Quebec-based telecom provider is expanding, providing a strong subscriber base that’s due only to rise, especially after the acquisition of Freedom Mobile. And don’t forget the dividend of 4.07% as of writing.
