The first half of the year has been decent for Canadian stocks. The TSX Index is up 5.5% year to date. However, when compared to the S&P 500’s 17% return, it doesn’t quite compare.
The TSX has some good stocks, but don’t buy the index
The TSX is home to a few excellent high-performing companies, several steady performers, many mediocre businesses, and several less-than-great businesses. The Canadian market is a stock pickers market.
You don’t really want to own the index if you want to have strong long-term returns. The index only delivered 6% compounded annual stock returns in the past five years. Long-term annualized returns haven’t been much better.
However, if you are looking for some long-term outperformance, here are two value-priced stocks to buy in the second half of 2024.
Cenovus: A cyclical set for cash returns
Cenovus Energy (TSX: CVE) is not a typical stock pick for the long term. It is an energy stock. However, it appears to have some strong catalysts for the second half of the year and beyond.
Cenovus is one of Canada’s largest integrated energy companies. It has a mix of long-life oil assets that are complemented by a portfolio of refinery operations across North America.
The company is just hitting its stride with its refinery business after some tough years. Likewise, with oil sitting over US$80 per barrel, it is generating substantial free cash flow. Cenovus has been using that cash to reduce its long-term net debt target of $4 billion.
It is likely to hit this target in the back half of 2024. Once it does, it plans to return all its spare cash flow to shareholders.
Cenovus is known for its strong dividend growth, special dividends, and share buybacks. Shareholders could see some nice upside as they start to collect more income and value from this stock.
With a 2% dividend yield and a price-to-free cash flow ratio of 7.4 times, Cenovus looks like an attractive purchase today.
Calian: Steadily growing and undervalued
If you are looking for a value play in 2024, Calian Group (TSX: CGY) looks to be an attractive buy. If you look at its stock, it hasn’t been pretty. Its stock is down -5% in 2024 and -12% over the past 52-weeks.
The stock is starting to look extremely cheap. Calian has a diversified and resilient mix of businesses in healthcare, training, cybersecurity, and advanced technologies. It is a major contractor to governments and institutions.
It has delivered high-teens growth in revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) over the past five years. Recent acquisitions could help support +30% EBITDA growth 2024. Margins have progressively been getting better, and it is benefiting from cross-selling opportunities across its platform.
This stock only trades for 10 times earnings. The company has been buying back stock here. With an 8% free cash flow yield and a 2% dividend yield, it looks attractively valued at today’s price. If it can continue to hit its targets, this stock could start turning around in the back half of 2024.
