Several popular Canadian stocks that gained meaningful traction in the first quarter still appear to be relatively undervalued, at least compared to their historical track records.
Indeed, the TSX Index’s latest ascent is totally worth getting behind, but if you’re at all growing a bit concerned about catching the top and punching your ticket to the next 10-15% correction, it makes sense to give some priority to those lower-cost stocks with lower betas that may be less rattled come the next market drop. At the same time, keeping some of your powder dry can pay off, especially if the market rebounds quickly from a plunge, as it did in the second quarter.
In any case, if you’re looking to put new money to work, I’d suggest looking towards value stocks. And in this piece, I’ll share two intriguing value plays that look to be averaging in with time.
Magna International
Magna International (TSX:MG) is a scary place to be as Trump tariff threats continue to haunt the Canadian auto parts industry. Undoubtedly, MG shares tanked to start the year before nearly coming back starting in early April. Indeed, those Liberation Day tariffs marked a low point for the shares.
And while the name is still down 4% year to date, I continue to view the resilience of the name as encouraging. With a nice 5.1% dividend yield that you’ll be paid while you wait, I am a fan of the deep-value stock, even though it’s in the crosshairs of a nasty trade war with the United States. The stock also looks to be in the bargain bin this July, with shares going for 10.3 times trailing price to earnings (P/E).
Looking ahead into the next year, shares look even cheaper, going for 9.2 times forward P/E. Of course, the name is risky and has proven quite the value trap in recent years. However, I think the tides could turn sooner rather than later as Magna shareholders contemplate how bad things could get with tariffs. At the end of the day, Magna is a cyclical business that will experience its lengthy bearish periods.
That said, let’s not forget that when the auto industry booms, it can really boom for auto-part makers, like Magna. I have no idea when the next boom will be. Regardless, those willing to wait for it, I think, are getting a rock-bottom multiple these days and enough passive income to make the wait worth it. Just fasten your seatbelts as 35% tariffs become the new fear on Bay Street come the first of August.
Aritzia
Aritzia (TSX:ATZ) is a growth stock and not a traditional value play. However, I think its incredible growth story comes at a very reasonable price. The women’s clothing retailer is at fresh highs of $75 and change. While a 37.7 times trailing P/E is very much a growth multiple, I find Aritzia’s U.S. expansion plan to be allowing the firm the ability to grow into its seemingly lofty price tag. Indeed, Aritzia seems to have all the makings of a long-term winner.
And while a pullback is bound to happen again, I would be ready to buy the dip. Tariffs aren’t derailing the U.S. growth story, making ATZ stock a fantastic bet for growth-minded investors who believe in the Aritzia brand and its ability to disrupt its apparel rivals south of the border. ATZ stock is a buy, plain and simple.
