TFSA (Tax-Free Savings Account) investors should look for value where it can be found, even when the search gets just a tad tougher. With the TSX Index off to an incredible start to the year, questions linger as to where the Canadian stock market goes from here.
Will it continue to surge, correct, or just go sideways for some period of time?
Though there are brilliant pundits on Bay Street sure to share their take, the answer is simply not knowable at this juncture. Instead of timing the market or asking yourself if the good times will keep on rolling, it makes more sense to look to the value plays that other investors seem to be sleeping on!
In this piece, we’ll draw our focus on three stocks that are getting absurdly cheap. And though they may not be as hot as the rest of the market, I view them as compelling options to do well (perhaps even better than the TSX Index) over the next three years. So, if you have the time horizon and seek a pretty decent risk/reward scenario, consider the following names as they come in!
Magna International
Magna International (TSX: MG) is a well-run auto part maker that seems to be stagnant since its shares ricocheted off their lows in 2022. Undoubtedly, the auto scene has cooled off in a big way, with the previously hot electric vehicle (EV) plays taking a backseat as well.
Though I have no idea when the auto boom will get rolling again, I see long-term value in Magna, one of the better auto part makers, not just in Canada but in North America. The stock is also getting quite cheap at 12.59 times trailing price to earnings (P/E) to go with the 3.46% dividend yield.
With a nice share-buyback plan in place and potential upside come the next expansionary cycle, I’d not sleep on shares while they consolidate into year’s end.
Linamar
Sticking with the auto part plays, we have Linamar (TSX: LNR), which goes for 8.7 times trailing P/E, making it even cheaper than rival Magna. The dividend yield is quite low at 1.39%, but recent year-to-date momentum, I believe, makes the stock an intriguing mid-cap option for upside-seeking investors.
Year to date, the stock is up more than 11%. That’s an impressive gain courtesy of a strong recent quarterly earnings report. Looking ahead, I’d look for Linamar to make further strides to hit new highs. The company’s mobility segment will be tough to stop once the auto tides turn back in its favour.
Laurentian Bank
Finally, we have Laurentian Bank (TSX: LB), which has one of the ugliest stock charts of all the Canadian banks. With a $1.2 billion market cap and a 6.6% dividend yield, the bank stands out as a higher-risk option for those seeking a shot at a higher reward.
Indeed, the bank has taken steps to digitize, but after stumbling on financial targets, questions linger as to where the regional bank will go from here. After a rough patch in 2023, it will be interesting to see if the bank can pick itself up. If it can, the rewards could be considerable. At 7.7 times trailing P/E, LB stock is dirt cheap, but it has some baggage, so do be aware of the risks!
