The Greatest Undervalued Stocks for Your TFSA Today

Before we even begin, let’s make one thing clear. Finding undervalued stocks doesn’t mean finding cheap share prices. This article isn’t about to show you some penny stocks that promise to shoot to the moon. Instead, we’re looking at one thing: quality. Quality is what can make stocks undervalued, as long as they demonstrate the right fundamentals.

So today, we’re going to look at three undervalued stocks – ones that offer strong value and long-term appreciation for a great price. Furthermore, we’ll delve into why these are perfect options for a Tax-Free Savings Account (TFSA). A TFSA is where the dividends and capital gains can get to work and compound, tax free. Now let’s get into why investors might want to consider Magna International (TSX:MG), Loblaw Companies (TSX:L) and Manulife (TSX:MFC) on the TSX today.

MG

First up we have Magna stock, a strong undervalued stock that’s already undergoing a massive recovery. Fundamentally, the valuation looks strong. The dividend stock trades at just 10.9 times earnings, and 7.9 times future earnings. It also trades at 0.32 times its sales value, demonstrating very cheap multiples for a large auto supplier.

What’s more, the second quarter demonstrated even more strength, with adjusted earnings before interest and taxes (EBIT) rising, earnings per share (EPS) up, and margins improving. This comes from restructuring and operational excellence, despite a 3% drop in sales. Meanwhile, MG stock continues to support a 4.2% dividend yield at writing with a payout ratio in the 40% range. Therefore, the undervalued stock continues to cover its debts and dividends, and function as an efficient operational machine.

L

While Loblaw stock doesn’t offer the deep value that Magna might, it still offers a high-quality, defensive stock for a great price. Right now, it trades at 21 times earnings, though 5.9 times book value. So yes, these are higher multiples, but reflect defensiveness and steady cash flow. This was seen during its second quarter, with revenue rising 5.2% and operating income up 42.7%. Free cash flow (FCF) and buybacks support all this, plus a slight dividend of about 1% at writing.

The biggest bonus though? The undervalued stock just went through a 4-for-1 split, increasing accessibility for investors. This provides a great price to get in on a powerful defensive stock. Loblaw stock remains dominant in the grocery and drug retail business in Canada, with pricing power, market share gains, and e-commerce growth. All of this provides predictable cash flow that makes it perfect for a TFSA investment.

MFC

Finally we have MFC, an incredibly attractive option for those seeking both value and income supported by strong financials. As of writing, the dividend stock trades at 13.9 times earnings, and 9.9% future earnings. What’s more it holds a 4.1% dividend yield and 54% payout ratio, making it look quite reasonable given its diversified life and asset management portfolio.

Most recently, its strength was seen during its quarterly report. The dividend stock reported strong operating cash flow and large liquidity, with total cash at $29 billion. The strong performance included solid profit margins and rising earnings growth. Manulife continues to hold a diverse set of insurance and wealth franchise investments, massive scale, capital, and liquidity. All put together, this dividend stock is set up to deploy capital through dividend increases and buybacks.

Bottom line

So yes, none of these dividend stocks trade for $5 per share. But who cares? You’re getting in on value, and instead of buying 20 of those $5 shares, you’re buying a few less shares and far more stability. Plus, one thing you’re not going to get from those risky stocks? Dividends. In fact, $7,000 invested in each stock would look something like this as of writing.

Together, these investments create the perfect three-stock core TFSA portfolio. You get diversification, value, income and growth. So don’t go for risk, go for reliability at a superb price.