Heavily discounted and tastefully undervalued stocks both have a strong appeal for a wide range of investors. While many of them might seem like a total steal at their current discounted/undervalued state, you have to look at more than just this temporary attraction to make a safe and informed decision regarding these stocks.
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A logging company
Stella-Jones (TSX: SJ) is one of the prominent names in the North American logging industry and specializes in pressure-treated wood products. It has an impressive presence in the region, with 29 wood-treating facilities in the U.S. and 16 in Canada. The bulk of its sales are in the U.S., and over 70% of them are in just two use cases: utility poles and railway ties. About 28 of the company’s facilities are dedicated to treating the wood for utility pools.
The company primarily caters to two niche markets, and both have their own challenges. The utility pole market might evolve to use different materials as transmission demand grows, with renewables joining the mix. As for railways, the massive infrastructure demands maintenance and replacement but has minimal growth opportunities. That said, Stella-Jones stock offered exceptional growth in the past few years and has gone up almost 120% since mid-2022. It’s also fairly valued with a price-to-earnings of 12.
A telecom giant
BCE (TSX: BCE) is one of the most heavily discounted stocks in Canada right now and one of the most brutalized telecom stocks. The whole telecom sector in Canada is currently suffering, but BCE’s 54% decline is easily the harshest. The stock is also dangerously overvalued. That said, there is still a little bit of hope that makes BCE a powerful pick at this discounted stage.
Both the positive and negative sentiment around BCE is tied to its dividends. Multiple experts are anticipating a significant dividend cut from the company. But even though the company has stalled growth, there hasn’t been an official decision to cut dividends yet. If the company manages to sustain its payouts, the massive 11.9% yield is reason enough to buy this stock. On top of that, investors can double their capital if the stock just makes a full recovery in the next decade (not a tall order).
An auto parts manufacturer
With a price-to-earnings of just 6.5, Martinrea International (TSX: MRE) is the most undervalued stock on this list. It’s also heavily discounted and trading below 43% of its most recent peak (2023), which makes a good combination with its valuation. While it’s not a very impressive number, the price slump has pushed its yield up to 2.3%.
There are multiple reasons why Martinrea is a compelling buy at this discount and valuation, starting with its solid financial results in the last quarter. If it repeats the performance and post solid fourth-quarter earnings, the stock might start going up at a decent pace. Secondly, it’s still trading well below the target price set by experts. Lastly, electric vehicle sales are expected to pick up pace, and the company might experience solid growth in demand for its services and products.
Foolish takeaway
All three stocks are going through a bear market phase, and the recovery outlooks are different. Martinrea is the most promising out of the three in terms of recovery, while BCE can be a compelling dividend pick if it doesn’t slash its dividends. Stella-Jones can also offer decent returns if the stock makes a solid come-back in 2025.
