Improving broader investors’ sentiments amid signs of easing tension in the Middle East and the reluctance of the United States Federal Reserve to raise interest rates despite the lack of progress on inflation have driven equity markets higher this month. The S&P/TSX Composite Index is up 2.7% this month. Amid the improving investor sentiments, I believe the following three value stocks could deliver superior returns over the next three years.
goeasy
goeasy (TSX:GSY) has outperformed the broader equity markets this year, with returns of 17.6%. However, it trades at an attractive valuation, with an NTM (next-12-month) price-to-earnings multiple 11.1. As of December 31, the subprime lender has acquired just 2% of the $218 billion Canadian subprime leading market. So, its scope for expansion is higher. Meanwhile, the company is expanding its product offerings and delivery channels and strengthening its digital infrastructure to grow its footprint and market share.
Further, the company has tightened its credit tolerance by increasing required credit criteria and made several credit adjustments across the product suite, which could lower its risks. Meanwhile, goeasy’s management projects its loan portfolio to increase by 56% over the next three years to reach $6 billion by 2026. Also, its revenue could grow at 12.9% annually while its operating margin could expand from 38.1% to 41% in 2026. goeasy has been raising its dividends at an annualized rate of around 30% since 2014, while its forward yield stands at 2.54%. Considering all these factors, I am bullish on goeasy.
Suncor Energy
Oil prices have strengthened this year amid the extension of voluntary production cuts by OPEC (Organization of the Petroleum Exporting Countries) and its allies and the conflict in the Middle East. Although oil prices have cooled down substantially over the last few days, they are still higher year to date. Higher oil prices could benefit oil-producing companies like Suncor Energy (TSX:SU).
Meanwhile, Suncor Energy reported an impressive first-quarter performance yesterday, with its adjusted funds from operations growing by 5.6%. Increased oil sand sales volumes and higher refinery throughput, with its utilization rate at 98%, drove its financials. However, lower price realization and increased royalties offset some of the growth.
Further, Suncor Energy has planned to invest around $6.3-$6.5 billion this year, strengthening its production and refining capabilities. It expects its average upstream production to be 770,000-810,000 barrels of oil equivalent per day, with the midpoint representing a 5.9% increase from the previous year. Its refinery utilization rate could improve from 90% in 2023 to 92-96%.
Higher production, increased refinery utilization rate, and elevated prices could drive Suncor Energy’s financials in the coming quarters. Despite its healthy growth prospects, the company trades at 9.9 times analysts’ projected sales for the next four quarters. It also offers a forward dividend yield of over 4%, making it attractive.
WELL Health Technologies
Another value stock I am bullish on would be WELL Health Technologies (TSX:WELL), which has lost around 36% of its stock compared to its 52-week high. Weaker-than-expected fourth-quarter earnings have weighed on its stock price, dragging its NTM price-to-earnings multiple down to 13.2.
Meanwhile, digitizing clinical procedures and the growing adoption of virtual healthcare services have created a multi-year growth potential for WELL Health. The company is also developing artificial intelligence-powered products and services and making strategic partnerships that could expand its footprint. Also, WELL Health has adopted several cost-optimizing initiatives that could improve its operational efficiency and profitability in the coming quarters. Considering all these factors, I believe WELL Health would be an excellent buy despite near-term volatility.
