Adding to one’s portfolio in this climate can feel like a daunting exercise. That’s understandable, given how much uncertainty investors face. Adding to stocks outside of the most defensive value-oriented names can seem like an exercise in futility, given how volatile markets have been of late. That goes double for Canadian investors looking to find value closer to home.
The good news is that the TSX is riddled with companies that not only have great valuations but very defensive business models and balance sheets.
In that regard, I’m going to highlight three top options I think value investors may certainly want to consider right now.
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Baytex Energy
For deep-value investors out there, one energy name I haven’t touched on in quite some time is the little-known Canadian energy producer Baytex Energy (TSX: BTE).
The company produces a mix of heavy and light oil from both Canada and the United States. Thus, this is a company that’s considered to be relatively more insulated from ongoing tariff turmoil and policy changes coming out of the U.S.
And from a pure valuation perspective, it’s hard to find any company (even an energy company, for that matter) trading around seven times earnings.
Some of this relative valuation discount to other oil majors can be tied back to the company’s still-indebted balance sheet (though there’s been progress on this front) and its relative size. However, I think deep-value investors can at least take a flyer on this name. For those bullish on energy demand ultimately increasing over time and cash flows continuing to remain robust for this sector, this is a more speculative name I think is worth keeping on the radar right now.
National Bank of Canada
A company with one of the lowest trailing price-to-earnings multiples on the TSX, but one which many long-term investors continue to hold, is National Bank of Canada (TSX: NA).
The sixth-largest Canadian bank by market capitalization, National Bank has been hit in recent years by concerns over the company’s core lending portfolio. That’s because the company is focused on mostly commercial loans in less desirable Canadian markets. So, with increased uncertainty has come a significant valuation discount.
I’ll leave it up to individual investors to decide whether this discount (the company currently trades at less than three times trailing earnings) is worthy of buying. But personally, this bank represents an investing profile that looks to me to be much lower risk than the discount the market is currently pricing in.
That’s to say nothing of the stock’s performance over the past five years, which has been very strong. Up roughly 75% over this time frame, I think similar upside could be ahead for those who can ignore what the absolute statistics say presently.
Suncor
At a trailing price-to-earnings multiple of just 10 times, Suncor (TSX: SU) is a company I’d consider to be an undervalued Canadian energy major worth considering at current levels.
Again, like the other companies on this list, Suncor has performed very well over the past five years. In fact, shares of the energy giant have more than doubled over this time frame.
I think similar performance could be ahead for this energy giant if many of the same factors at play for Baytex continue to play out for the sector as a whole. Additionally, Suncor’s rock-solid balance sheet and dividend yield of 4.5% add even more ballast for investors who are willing to duke out this market volatility.
For long-term investors, a portfolio that includes each of these value names certainly would be compelling in my books. But, as is typically the case with stocks that trade at a relative discount, an appropriate amount of research should be done to see if these investments meet an individual’s risk profile and growth goals.
