2 Undervalued Gems I’d Buy in June 2024

Here’s why undervalued TSX stocks such as ADF Group may help you deliver market-beating returns in 2024 and beyond.

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Investing in stocks that are undervalued or trading below their intrinsic value should help you generate outsized gains over time. Its essential to identify cheap stocks trading at a discount to peers and the broader markets to enjoy market-beating returns. Here are two such undervalued stocks that Canadian investors can buy right now. Let’s dive deeper.

ADF Group stock

Valued at $560 million by market cap, ADF Group (TSX:DRX) is involved in the design and engineering of fabrication, which includes the application of industrial coatings and installation of complex steel structures. It operates in a niche segment and is capable of handling technically complex projects across industrial, commercial, and public sector markets.

ADF operates two fabrication plants and two paint shops in North America as well as a construction division south of the border, which specializes in the installation of steel structures and other related products.

In fiscal 2024 (which ended in January), ADF reported revenue of $331 million, up 32% year over year. Its net income more than doubled to $37.6 million, while operating cash flow stood at $78 million. The company ended fiscal 2024 with an order backlog of $511 million, higher than $376.5 million in the year-ago period.

Analysts tracking the TSX stock expect sales to rise by 9.7% to $363 million in fiscal 2025 and by 6% to $385 million in 2026. Comparatively, adjusted earnings are forecast to expand from $1.15 per share in 2024 to $1.36 per share in 2025 and $1.49 per share in 2026. So, priced at 12.6 times forward earnings, ADF stock is quite cheap, given its steady earnings growth.

ADF has been among the hottest TSX stocks in recent years, rising a whopping 1,450% since June 2019.

North American Construction stock

Another cheap TSX stock is North American Construction (TSX:NOA), which trades at a market cap of $755 million. NAC provides heavy civil construction and mining services to companies in the U.S., Canada, and Australia.

In the first quarter (Q1) of 2024, NAC reported a combined revenue of $345.7 million, compared to $322.2 million in the year-ago period. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $93.3 million, indicating a margin of 27%. In the year-ago period, its EBITDA was lower at $84.6 million or 26.3% of sales. NAC attributed margin improvements and operational efficiencies in Australia to strong EBITDA growth in Q1.

The company ended Q1 with a contractual backlog of more than $3 billion, an increase of $294 million year over year. This increase is based on higher contractual volumes in Australia.

NACG’s widening margins allow it to pay shareholders an annual dividend of $0.40 per share, indicating a yield of 1.4%. Moreover, these payouts have risen by 38% annually in the last five years.

Analysts tracking NOA stock expect adjusted earnings to expand from $2.83 per share in 2023 to $4.44 per share in 2024. So, priced at less than seven times forward earnings, NAC is among the cheapest companies on the TSX.

Analysts remain bullish and expect the dividend stock to surge over 50% in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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