The slower-than-expected monetary easing initiatives by the United States Federal Reserve and the fear that Donald Trump’s administration’s proposed tariffs will hurt global growth have turned global equity markets volatile. Given this uncertain outlook, I believe investing in value stocks would be a better strategy.
In value investing, investors calculate the intrinsic values of stocks through fundamental analysis. If a stock trades less than its intrinsic value, investors will buy the stock. Against this backdrop, here are two value stocks that I believe investors can buy and hold forever.
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goeasy
goeasy (TSX:GSY) is an alternate financial services company that has been under pressure over the last few months, losing around 15% of its stock value compared to its 52-week high. The fear of defaults amid a challenging macro environment and transition in leadership with Jason Mullins stepping down from the president and chief executive officer position have made investors nervous, leading to a pullback. Amid the correction, the company’s NTM (next-12-month) price-to-earnings multiple has declined to 9.2.
Meanwhile, goeasy continues to expand its loan portfolio, which grew by 28% to $4.39 billion in the third quarter. Its record loan originations amid rising credit demand and solid performances across its product and acquisition channels expanded its loan portfolio. Meanwhile, its top line grew 19% to $383 million during the quarter. Also, its adjusted operating margin expanded from 40.4% to 42.6%, while the efficiency ratio improved 550 basis points from 28.6% to 23.1%. Amid topline growth and expansion of its operating margins, the company’s adjusted EPS (earnings per share) grew by 13% to $4.32.
Moreover, the falling interest rate could boost economic activities, thus driving credit demand. Given its comprehensive product range and solid distribution channels, goeasy could benefit from credit demand growth and expand its loan portfolio. Also, the company’s adoption of next-generation credit models, tightening underwriting requirements, and rising proportion of secured loans could lower delinquencies and boost profits.
Meanwhile, the company’s management expects its loan portfolio to be between $6 and $6.4 billion by the end of 2026, with the midpoint representing 42.5% growth from the third quarter levels. Also, its top line could grow at an annualized rate of 14% through 2026 while improving its operating margin to 42%, which looks healthy.
goeasy has also rewarded its shareholders by raising its dividends at a 30% CAGR (compound annual growth rate) for the last 10 years. It currently pays a quarterly dividend of $1.17/share, with its forward yield at 2.66%. Given its healthy growth prospects, cheaper price-to-earnings multiple, and consistent dividend growth, I believe goeasy would be an excellent buy.
Telus
The telecommunications sector has been under pressure over the last two years due to unfavourable policy changes, rising competition, a slowdown in new customer additions, and rising interest rates. Amid the weakness, Telus (TSX:T), one of Canada’s three top telecom players, has lost around 42% of its stock value compared to its 2022 highs. The steep correction has dragged its valuation down to attractive levels, with its NTM price-to-sales multiple at 1.5.
Meanwhile, Telus continues to expand its 5G and broadband infrastructure, with its 5G service covering 87% of Canadians and its broadband service expanding to 3.3 million premises. The company enjoys a lower churn rate due to its attractive bundled offerings. Also, its expanding margins due to improving cost efficiency and falling interest rates could boost its profitability.
Moreover, Telus has rewarded its shareholders with consistent dividend growth and share repurchases. Since 2004, it has bought $5 billion in shares and paid $21 billion in dividends. It has raised its dividends 27 times since 2011 and currently offers a higher dividend yield of 8.05%.
