The ongoing market volatility offers you the opportunity to buy quality stocks at a discount and benefit from outsized gains when market sentiment improves. Here are two quality undervalued TSX stocks you can consider buying in April 2024.
Spin Master stock
Valued at $3.2 billion by market cap, Spin Master (TSX: TOY) stock is down 47% from all-time highs. Spin Master is among the largest children’s entertainment companies in the world with three business segments that include Toys, Entertainment, and Digital Games.
With distribution in more than 100 countries, Spin Master is known for its global portfolio of brands, including PAW Patrol, Air Hogs, and GUND.
Its entertainment division creates and produces multi-platform content through an in-house studio and in partnership with other creators. Moreover, it has established a presence in online gaming by offering open-ended and creative games and educational play across digital environments.
In 2023, Spin Master reported revenue of $1.9 billion and generated a record $419 million in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), indicating a margin of 22%.
Spin Master reported an operating margin of $227 million and a free cash flow of $123 million in 2023, which meant it spent over $100 million in capital expenditures. In the last four quarters, Spin Master also acquired certain assets from 4D Brands for $18.9 million and purchased the HEXBUG brands of toys for $14.6 million.
Spin Master pays shareholders an annual dividend of $0.24 per share, which translates to a forward yield of 0.77%. The toy company paid shareholders total dividends of $18.4 million last year, which suggests it has a payout ratio of less than 15%.
Priced at 10 times forward earnings, Spin Master stock is quite cheap, given its forecast to increase earnings by roughly 9% annually in the next two years. Analysts remain bullish and expect the TSX stock to surge by 50% in the next 12 months.
Parkland stock
Valued at $7.5 billion by market cap, Parkland (TSX: PKI) is an international fuel distributor and convenience retailer with operations in 26 countries. Its commercial operations provide businesses with industrial fuels, including renewable fuel sourcing, while its retail business serves more than one million customers each day. With 4,000 retail and commercial locations in North America, Parkland has developed supply, distribution, and trading capabilities over time.
Parkland pays shareholders an annual dividend of $1.40 per share, indicating a forward yield of 3.3%, which is quite tasty.
Despite an uncertain macro environment in 2023, Parkland increased adjusted EBITDA by 18% to $1.9 billion and operating cash flow by 34% to $1.78 billion. A widening earnings base allowed Parkland to repay debt amid rising interest rates, thereby strengthening its balance sheet.
In 2023, Parkland repaid $747 million of its credit facility, lowering its leverage ratio to 2.8 times from 3.4 times in the year-ago period. The company also raised dividends by 3% year over year, marking its 12th consecutive year of dividend hikes.
Priced at 13.6 times forward earnings, PKI stock is forecast to expand earnings by 20% in the next 12 months. Analysts expect the TSX dividend stock to surge by almost 30% in the next 12 months.
