Cheap stocks aren’t what you might think. For new investors, they might see a TSX stock with a low share price and think that’s it! These are cheap stocks that can certainly explode one day into three-digit territory, right?
Wrong. A high share price can still be cheap, and a low share price can still be expensive. What investors want to find is value, which is what heavyweight champion investor Warren Buffett has always focused on. And let’s be honest, he’s done alright for himself. Today, let’s look at three stocks that actually look cheap.
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WFG
First up, there’s West Fraser Timber Co. (TSX: WFG). This company focuses on vertically integrated wood products and forest products. It produces everything from lumber to pulp, wood chips to newsprint. This has made it an essential part of the economy, and one that looks quite valuable at writing.
During the second quarter, WFG reported weak demand and negative net income as tariffs and U.S. trade action impacted sales. Forward multiples now look elevated because earnings are volatile. However, these temporary actions aren’t what investors should focus on, but future income.
Valuation-wise, WFG still looks like a cheap stock that has rebound potential. It trades at just 0.97 times sales, a share price near its 52-week lows, and 0.8 times book value. Overall, if housing demand climbs, pricing recovers, and tariffs reduce, then this could be a strong buy for future income.
AQN
Another essential area of the economy is utilities. These companies power everything from our homes and businesses to factories. And one of the best options currently going through a restructuring is Algonquin Power & Utilities (TSX: AQN).
During the most recent earnings report, AQN reported high debt and negative levered free cash flow of $767 million. Yet it’s balanced this after the sale of its renewable properties a year ago to help reduce its debt. So while it’s a company still in recovery mode, once that’s done, it could be a top cheap stock for investors to consider for the long term.
And right now, it still looks valuable, trading at 1.77 times sales and 0.93 times book value. Given that it holds regulated utilities and is focusing more on these holdings, this provides the stock with stability in the long term. Meanwhile, it offers a 4.8% dividend yield for investors to consider during this turnaround.
CAE
Finally, we have CAE (TSX: CAE), with the aerospace and defence company holding quality that’s shown in its earnings. While it’s not traditionally cheap, long-term investors can certainly look forward to steady bookings, which equals steady revenue.
During the most recent quarter, the cheap stock reported healthy revenue and margins, with a huge $19.5 billion backlog. CAE also holds strong operational performance, solid free cash flow, and diversified civil and defence businesses. While free cash flow turned negative this quarter, that’s more due to working capital timing and nothing wrong the company has done.
Now, the valuations are a bit higher here with the cheap stock trading at 2.61 times sales and 2.52 times book value. It’s trailing at 29.8 times earnings and 30.7 times future earnings. Yet it’s also a quality growth name in an industry that offers huge long-term value.
Bottom line
Cheap stocks are hard to find, and those that start off cheap don’t stay that way for long. Investors are certainly taking a risk if they want in on companies they hope will shoot to the moon. Yet these cheap stocks offer one thing: stability.
Whether it’s from regulated utilities, housing demand, or the defence sector, these are essential areas of our economy. That makes all three of these cheap stocks prime opportunities for the patient investor.
