The S&P/TSX Composite Index has rebounded strongly over the last few months and hit a new all-time high yesterday. The index is up around 24% compared to its April lows. The de-escalation of geopolitical tensions in the Middle East—driven by an Israel-Iran ceasefire—alongside a strengthening economic environment and reduced trade policy uncertainty due to the United States and European Union trade agreement, has boosted investor sentiment and pushed the index higher. However, the following two Canadian stocks are still trading at a discount compared to their recent highs, while their valuations look cheap. Given their solid underlying businesses and discounted stock prices, I expect these companies to deliver superior returns over the next three years.
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WELL Health Technologies
WELL Health Technologies (TSX: WELL), a tech-enabled healthcare company, has been under pressure this year, losing around 32% of its stock value. The ongoing investigation of the billing practices of its U.S. subsidiary, Circle Medical, has made investors nervous, dragging its stock price down. Amid the pullback, the company’s NTM (next-12-month) price-to-sales multiple stands at an attractive 0.8.
Moreover, the growing adoption of telehealthcare services and digitization of clinical procedures have created a multi-year growth potential for WELL Health. Meanwhile, the company had around 1.6 million patient visits in the first quarter, representing a 23% increase from the previous year’s quarter. Further, the company continues to innovate and develop new products to enhance patient experience and aid healthcare practitioners in delivering positive patient outcomes.
The company is also continuing with its acquisitions. WELL Health’s Canadian Clinics business acquired two clinics earlier this month, which can contribute $12 million in annual revenue and around $3 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Additionally, the segment has a solid acquisition pipeline of 124 clinics, which can contribute $370 million to its top line and $50 million of adjusted EBITDA. Considering all these factors, I believe WELL Health can outperform over the next three years.
Savaria
Another Canadian stock that has underperformed the broader equity markets this year is Savaria (TSX: SIS), which is down 17.3% compared to its 52-week high. Amid the correction, its NTM price-to-earnings multiple has declined to 18.2. Meanwhile, the company had reported a healthy first-quarter performance in May, with its top line growing by 5.2%. The favourable impact of currency translation, organic growth, and the contribution from Matot, which was acquired last year, more than offset the impact of the divestment of Van-Action and Freedom Motors to drive its top-line growth.
Supported by top-line growth and the expansion of its gross margin, the Laval-based accessibility provider posted an operating income of $21.2 million, an increase of 19.8% from its previous year’s quarter. Its operating margin also improved from 8.5% to 9.6%. Further, its adjusted EBITDA grew 17.2% to $40.6 million, while adjusted EBITDA margin improved 190 basis points to 18.5%. Amid these solid operating performances, its net debt-to-adjusted EBITDA ratio improved from 1.63 at the end of 2024 to 1.45. Also, the company had $254.7 million of available cash at the end of the first quarter, thereby allowing it to fund its working capital and growth opportunities.
Moreover, the growing aging population and rising income levels could support demand growth for accessibility solutions, thereby creating a long-term growth potential for Savaria. The company is also focusing on developing innovative products, boosting its production capabilities, and driving operational efficiencies through its “Savaria One” initiative. These growth initiatives could support its financial growth and drive its stock price. Additionally, Savaria currently also offers $0.045/share monthly dividend, translating into a forward dividend yield of 2.73%.
