Investing in stocks trading at a steep discount to their intrinsic value should help investors generate outsized gains over time. It’s crucial to identify a portfolio of undervalued stocks that you can buy at a cheap price and benefit from market-beating returns when sentiment improves. Here are three such Canadian value stocks to buy right now.
High Tide stock
Valued at a market cap of $240 million, High Tide (TSXV: HITI) is a retail-focused cannabis company with brick-and-mortar as well as global e-commerce assets. Its growing network of stores across Canada is complemented by a strong position in North America. Moreover, High Tide sells accessories and premium hemp-derived CBD products via its e-commerce platform.
High Tideās subsidiary, Canna Cabana, is the largest non-franchised cannabis retail chain in Canada and operates 165 retail cannabis stores in the country. Despite an uncertain macro environment, High Tide increased sales by 9% year over year in fiscal Q1 of 2024 (ended in January). High Tide attributed top-line growth to a shift in retail pricing strategy, the launch of the discount club model, store openings, and organic growth. It ended Q1 with 161 stores, up from 147 stores in the year-ago period.
High Tideās strong performance can be tied to its innovative discount club model. This includes the paid subscription to its ELITE membership program and the Cabana Club. Its Cabana Clubās membership surpassed 1.3 million, which should result in strong recurring revenue.
Unlike most other cannabis stocks, High Tide is on the cusp of reporting consistent profits. Analysts tracking the stock expect it to report adjusted earnings of $0.17 per share in fiscal 2025, compared to a loss of $0.03 per share in 2023. So, priced at 18 times forward earnings, High Tide stock is quite cheap right now.
Spartan Delta stock
Valued at $720 million by market cap, Spartan Delta (TSX: SDE) has a portfolio of production and development opportunities in the Deep Basin and Duvernay. It aims to focus on organic drilling opportunities in the Deep Basin and target acquisitions, which should drive future cash flows higher.
In Q1 2024, Spartan Delta reported oil and gas sales of $84.1 million and adjusted funds flow of $45.7 million, or $0.26 per share. It executed a $45 million capital program in Q1 as it continued to develop liquids-rich targets in the Deep Basin.
Priced at just 1.4 times forward earnings, Spartan Delta is among the cheapest Canadian stocks you can buy in May 2024.
Secure Energy Services stock
The final undervalued stock on the list is Secure Energy Services (TSX: SES). Valued at $3 billion by market cap, Secure Energy is a water management and energy infrastructure company. It expects to end 2024 with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of between $450 million and $465 million, indicating the stock trades at an Enterprise Value/ EBITDA multiple of less than seven times, which is very cheap.
Additionally, Secure Energy pays shareholders a quarterly dividend of $0.10 per share, translating to a forward yield of 3.5%. In Q1, Secure Energy reported free cash flow of $93 million, or $0.33 per share, indicating a payout ratio of less than 40%.
