Sometimes, the very best value stocks out there are hidden in the depths of the TSX Index. Other times, you don’t really need to look too far to find tremendous opportunities to score a stock at a discount to its intrinsic value (the main goal of value investing). Though it can be tough to land any sort of quick gain on a week-to-week or even month-to-month basis, I think that DIY stock pickers with a multi-year horizon can do a heck of a lot better than the TSX Index.
With markets coming in to start the month of August, Canadian value investors should revisit their buy watchlists to see if anything on the radar is now worth picking up while they’re off a great deal from their recent highs. In this piece, we’ll check out two intriguing TSX value stocks that could punch well above their weight as we inch toward the midpoint of the third quarter of 2024.
Canadian Tire
First, we have hard-hit discretionary goods retailer Canadian Tire (TSX: CTC.A), which boasts a towering 4.94% dividend yield at the time of writing. With the firm heading into earnings with some fairly modest expectations, long-term investors may wish to initiate a partial position before and after the number. Indeed, the consumer isn’t eager to spend on those “wants” these days.
However, the real question is whether the coming Bank of Canada rate cuts will do anything to lift consumer spirits. I think they can, and Canadian Tire seems as well prepared as any other retailer in the nation to enjoy accelerating sales on the back of soaring consumer confidence.
Even as the economy drags into year’s end, rate cuts could be a shot in the arm that the retail scene really needs right now. Personally, I think Canadian Tire is the best value in all of Canadian retail right now. Even if the consumer isn’t ready to spend heavily again, management is fully focused on expanding its private label while continuing to improve the digital (and physical) customer experience.
Additionally, I wouldn’t count Canadian Tire out of the game, as new artificial intelligence (AI) technologies remove inefficiencies behind the scenes. Indeed, perhaps CTC.A stock is a hidden AI play and one that investors should consider while it’s still down a third from its 2021 peak.
Bank of Montreal
Up next, we have Bank of Montreal (TSX: BMO), which is fresh off a tough quarterly result. The bank stock is sinking, even as its peers begin to pick up traction. To make matters worse, BMO stock found itself being downgraded by a big analyst on Bay Street.
RBC Dominion Securities analyst Darko Mihelic doesn’t seem to be a huge fan of the risk/reward trade-off in BMO right here. He cites declining credit quality as the primary reason for the downgrade from outperform to sector perform (the equivalent of buy to hold).
Undoubtedly, the downgrade caused BMO stock to fall under pressure. Though risks are ahead for BMO, I think they’re mostly factored into the valuation. Today, shares go for 13.75 times trailing price to earnings. With a 5.32% dividend yield and room to run, I’d much rather be a buyer than a seller, even as analysts turn their backs.
