The broader equity market has shown solid growth over the past year, driven by the economy’s resiliency, anticipated rate cuts, and investors’ optimism surrounding artificial intelligence (AI) technology. This optimism has led to notable gains in several Canadian stocks. However, shares of a few fundamentally strong TSX companies still trade cheap on the valuation front, presenting attractive investment opportunities at current levels.
So, for investors looking to buy high-quality stocks trading remarkably cheap, here are my top three picks.
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Stock #1
Shares of financial services company goeasy (TSX:GSY) look highly attractive on the valuation front. goeasy, which offers lending services to subprime borrowers, is known for consistently growing its sales and earnings at a solid double-digit rate. Thanks to its stellar financials, it has created significant wealth for its shareholders and outperformed the TSX with its returns.
While goeasy stock has trended higher, it remains attractively valued at current levels. The company’s next 12-month (NTM) price-to-earnings multiple is 9.3, well below its historical average. This is particularly enticing when you consider goeasy’s potential for continued double-digit earnings growth, a dividend yield of 2.7%, and a robust return on equity (ROE) of over 21%.
goeasy’s dominance in the subprime lending space, coupled with a large and growing market, positions it well to expand both its loan portfolio and overall financials. Additionally, the company’s broad product offerings, ongoing geographic expansion, omnichannel capabilities, and diversified funding sources equip it with the tools needed for future growth. These factors are likely to drive increased revenues in the coming years.
With strong revenue growth, solid performance across all business areas, sound credit underwriting practices, and a focus on operational efficiency, goeasy is well-positioned for long-term profitability. This solid financial foundation could continue to push the stock higher and enable goeasy to increase shareholder value, mainly through future dividend hikes.
Stock #2
Shares of telecom giant Telus (TSX:T) could be a solid addition near the current price levels. While macro and competitive headwinds pose short-term challenges, Telus’s ability to consistently expand its customer base and focus on cost efficiency provides a strong foundation for future growth and higher dividend payments.
Telus’s continued investments in PureFibre Network and 5G deployment position it well to grow across mobile, home, and business services. The company is also focusing on scaling its digital capabilities and acquisitions to accelerate growth by capitalizing on high-growth areas such as digital transformation and cybersecurity.
Telus recently announced the acquisition of Vumetric, a leading cybersecurity provider, to enhance its security services portfolio. It also unveiled its generative AI (GenAI)- powered customer support tool. The company is expanding its partner ecosystem and AI capabilities to accelerate growth. Overall, Telus is poised to deliver solid capital gains and dividend income.
Stock #3
Shares of Canadian technology giant Shopify (TSX:SHOP) are currently trading at a discount, presenting a good buying opportunity. Its valuation, measured by a NTM enterprise value-to-sales ratio of 9.2, is below the historical average. While Shopify stock has witnessed a pullback, its fundamentals remain solid, and the company continues to grow both its gross merchandise volume (GMV) and revenue.
Shopify stands to benefit from the ongoing digital transformation. As a key player in supporting multi-channel commerce, it is well-positioned to capitalize on the shift toward omnichannel retail. The company is also growing its merchant base, retaining revenue from existing clients, and boosting sales from both new and existing customers.
Furthermore, increased adoption of Shopify Payments and continued product innovation will likely drive sustainable revenue growth and market share gains. Additionally, Shopify’s international expansion, cost efficiencies, and transition toward an asset-light business model position it well to deliver sustainable earnings and support its share price.
