While the TSX index continues to trade near all-time highs, several incredibly undervalued Canadian gems are hiding in plain sight. Two such companies, Magellan Aerospace (TSX: MAL) and Total Energy Services (TSX: TOT) are trading at enticing valuations and are on the cusp of a turnaround.
Despite strong fundamentals and improving business prospects, Bay Street has largely overlooked these two TSX stocks. As value investors know, the most significant gains are often derived by identifying temporarily mispriced companies. So, let’s dive deeper into why these cheap TSX stocks could be poised for a significant rebound over the next 12 months.
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A cheap TSX stock to own right now
Valued at a market cap of $600 million, Magellan Aerospace is an aerospace company that’s quietly building crucial components for the global aviation industry. Magellan manufactures everything from engine parts to wing components, serving markets across North America, Europe, and Asia.
Its portfolio includes aero engine products, rocket systems, and cutting-edge 3D sand printing technology. Beyond manufacturing, Magellan offers valuable maintenance, repair, overhaul services, and fleet management solutions. Think of them as a one-stop shop for aerospace manufacturing and services, making the stock a fascinating play in the aviation supply chain.
In the last 12 months, Magellan Aerospace reported revenue of $925.2 million, up 9% year over year. Analysts tracking the TSX stock expect revenue to surpass $1 billion in 2025, while earnings are on track to expand to $1.5 per share in 2026, up from $0.17 per share in 2023. So, priced at seven times forward earnings, MAL stock trades at a cheap valuation, given its strong growth estimates.
MAL pays shareholders an annual dividend of $0.10 per share, which translates to a forward yield of almost 1%. The company is projected to end 2026 with a free cash flow of $75 million, compared to an outflow of $35.9 million in 2023. With an annual dividend expense of less than $6 million, Magellan should continue to raise dividends over the next two years.
Analysts remain bullish and expect MAG stock to gain over 45% in 2025.
Total Energy Services is an undervalued gem
Valued at a market cap of $440 million, Total Energy is a Calgary-based energy services company with four primary business segments. It owns and operates a fleet of drilling rigs, oilfield transportation trucks, and well-servicing rigs in Canada, the U.S., and Australia.
Basically, Total Energy is a one-stop shop for energy companies, offering rental equipment, compression services, and well-servicing solutions. With operations spanning three continents, it is uniquely positioned to capture growth in multiple energy markets.
The TSX stock has almost doubled investor returns in the last five years as its sales have grown from $366 million in 2020 to $873.7 million in 2024. It pays shareholders an annual dividend of $0.36 per share, indicating a forward yield of 3.05%.
Analysts expect adjusted earnings to grow from $1.01 per share in 2023 to $2 per share in 2025. So, priced at six times forward earnings, Total Energy stock trades at a discount of over 50% to consensus price targets in January 2025. With an annual dividend expense of less than $15 million, Total Energy’s free cash flow is estimated to grow from $18 million in 2024 to $125 million in 2026.
