Finding value in any market is what every investor should be after. Indeed, stocks are on a tear right now, with the Canadian TSX still hovering around all-time highs. Thus, identifying truly undervalued stocks in such an environment may seem more difficult than ever.
In some sense, I think this is right. But there continue to be solid buying opportunities right now that I also think are relatively overlooked, compared to their upside potential.
Here are three of my top picks in this regard right now.
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Suncor
With a valuation of just 10.7 times earnings and a 4.5% dividend yield, Suncor (TSX:SU) continues to be one of the top value stocks I look at in this current market.
That’s because the energy giant continues to produce robust cash flow in the current volatile market for crude oil and natural gas. And while prices continue to fluctuate, Suncor’s core business model and operational efficiency metrics (among the best in its peer group) continue to propel very strong earnings.
So long as oil can remain above US$60 per barrel, Suncor is a stock that can continue to produce outsized cash flows relative to its valuation. Yes, there’s plenty of commodity price-related risk to be considered when holding such a stock in one’s portfolio. But for those with a long-term investing time horizon, Suncor has certainly proven why it belongs in most portfolios in recent years.
Cargojet
One company I haven’t discussed for some time, partly due to its underperformance, is Cargojet (TSX:CJT).
As investors will note from the chart above, Cargojet has seen a marked decline of more than 20% over the past year and has actually lost money for investors over the past five years. That’s hard to do, particularly in this market.
But with a near-monopoly on the air cargo freight market in Canada, there’s a lot to like about the company’s upside over time.
Now, tariffs have certainly complicated the picture for Cargojet, and we’ll have to see what’s ultimately announced on this front. But given the long-term benefits that NAFTA and other agreements have provided North American nations, I’m expecting to see a resolution take place in short order.
On any sort of positive announcement on this front, I think Cargojet will soar higher from here. At current levels, this is a stock that looks like a solid buy to me.
Toronto-Dominion Bank
Now for a truly blue-chip Canadian stalwart worth considering. Unlike Cargojet above, Toronto-Dominion Bank (TSX:TD) continues to be one of the largest companies in Canada, and for good reason.
The second-largest Canadian bank, TD has grown into an absolute behemoth, with extensive operations domestically and globally. One of the largest U.S. retail banks as well, TD’s footprint is as impressive as its long-term growth trajectory.
With a solid dividend yield of 4.1% driven by very consistent cash flow growth over time, investors can expect plenty more in the way of dividend hikes over time.
And while other stocks may be stuck in the mud, TD has continued to show what its rock-solid balance sheet in the financial sector can mean for growth during times when interest rates are coming down (and expected to continue coming down in the U.S.). For those looking to play the financials sector, TD remains a top pick of mine right now.
