One of the best ways to increase your chances of multiplying your portfolio is to look where others aren’t paying attention. Often, that means buying good companies going through a rough patch. Sometimes, the stock market punishes short-term setbacks harshly, even if the long-term growth fundamentals are still intact. And for patient investors, that could act as a golden opportunity.
Right now, a couple of Canadian stocks are sitting in that exact sweet spot. Let’s take a closer look at these two TSX-listed dirt-cheap stocks that look like smart picks with a $1,000 investment today.
Source: Getty Images
Teck Resources stock
Let’s start with Teck Resources (TSX: TECK.B), one of the top Canadian miners that’s been hammered lately but still has big copper dreams. It is a major player in the copper and zinc space, with assets across North and South America. Teck stock is currently trading at $46.46 per share with a market cap of nearly $22.7 billion. It also offers a modest annualized dividend yield of around 1.1%.
Now, the reason this stock is dirt cheap is because it has been out of favour for quite some time. Teck’s share price has dived nearly 26% over the last year. That drop has brought the stock about 36% below its 52-week high, even though the company has kept a strong balance sheet and maintained capital discipline.
In the second quarter, Teck posted adjusted earnings of $0.38 per share and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $722 million, which held up quite well despite softer commodity prices. During the quarter, its revenue dropped by 12% YoY (year-over-year) to $2 billion due mainly to lower copper prices and other operational constraints.
However, Teck’s consistent efforts to accelerate its financial growth make it hard to ignore. Notably, the company recently got the green light to move ahead with the Highland Valley Copper Mine Life Extension project. This project will extend the life of its flagship mine by nearly two decades and add about 132,000 tonnes of copper production annually once operational.
Even with some pressure on earnings this year, Teck is sitting on $4.8 billion in cash. With its capital plans now tilted toward copper growth and a much leaner structure, this could be one of the most attractive undervalued stocks on the TSX today.
Pason Systems stock
Pason Systems (TSX: PSI) could be another overlooked stock to consider right now. The firm mainly provides data management tools and automation tech to the drilling industry, including remote communications and real-time analytics.
After falling 18% in the last year, PSI stock is currently priced at $11.63 per share, giving it a market cap of just over $900 million. At this market price, it pays a generous annualized dividend yield of about 4.5%, making it appealing to income-focused investors, too.
In the June quarter, Pason’s revenue fell 1% YoY to $96.4 million. As a result, its adjusted EBITDA also fell slightly from a year ago to $31.6 million, with some margin compression in its newer business segments.
Nevertheless, even with a 5% drop in North American drilling rigs, Pason’s revenue per industry day rose 3% in the latest quarter. Meanwhile, its completions segment grew 12% YoY, and its solar and energy storage segment jumped 58%.
Despite the ongoing macro uncertainty, Pason is still generating solid free cash flow, keeping its balance sheet debt-free, and returning capital to shareholders through dividends and buybacks. All in all, this is a low-debt, high-cash-flow stock that looks undervalued for what it delivers.
