How goeasy became investors’ darling

The $1.75 billion goeasy mainly caters to non-prime borrowers. As traditional financial institutions moved away from lending to subprime and non-prime borrowers, particularly after the 2008 financial meltdown, the addressable market for lenders like goeasy increased substantially.

But despite being in a risky industry, goeasy has seen consistent operational and financial performance over the years. Its revenues grew by 18% while the net income expanded by an astounding 29% compounded annually in the last decade. It’s superior profitability and stable margins indicate stellar earnings quality. As a result, the stock has returned a massive 1,220% in the last decade.

For the quarter that ended on March 31, 2023, goeasy saw loan receivables jump 38% year over year to $2.99 billion. This was driven by higher demand across all its product lines like automotive financing, home equity loans, and point-of-sale financing. The company’s total operating income increased to $102 million during the quarter, marking a decent 28% growth year over year. Such an increase, even amid macroeconomic uncertainties, speaks about its fundamental strength and scale.

What’s next for goeasy?

goeasy has gradually expanded its product range and loan amounts over the years. Its prudent underwriting and omnichannel presence have been the key to its consistent performance.

The management clarified on the new proposed annual interest rate during the company’s Q1 earnings call. It said that the new rate will make the industry relatively less attractive for new entrants, reducing the supply of credit. So, this will ultimately help goeasy expand its market share due to the scale advantage. As a result, the management kept its long-term guidance intact.

For 2025, goeasy expects its gross loan receivables to reach close to $5 billion. Its operating margin is forecasted at over 38% in 2025, indicating a decent expansion from current levels. GSY’s return on equity will likely keep upwards of 21%, implying consistent profitability. Its long-term average return on equity comes close to similar levels. So, the new regulatory headwinds are unlikely to make any material impact on its profitability and shareholder value.

Valuation

GSY stock is currently trading eight times its earnings and looks undervalued. Considering its superior performance over the years and a recent correction, GSY stock should trade at a higher valuation multiple. In comparison, the industry average is much higher and indicates GSY’s relative discount.

GSY will likely create handsome shareholder value in the next few years with its operational and financial growth prospects. With the new expected regulatory changes, goeasy’s yield on consumer loans will likely see little or no impact. This creates the possibility of sending the stock to its pre-correction levels.  

The post Is goeasy Stock a Buy After its Q1 Earnings? appeared first on The Motley Fool Canada.

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

The Canadian markets are up 5%, while the S&P 500 has soared 10% so far in 2023. It’s interesting to see how equities are holding strong even amid the rising recession fears and unending macroeconomic uncertainties. However, considering an impending economic downturn and ensuing interest rate cuts, one pocket looks quite appealing—utilities.  

Utility stocks outperform in market downturns

TSX utility stocks are well-placed to ride through a recession. And that’s because of their stable earnings profile. Utilities are often called “widow-and-orphan” stocks because of their stable dividends and less volatile stocks. However, they have notably outperformed in bear markets. For example, when the broader markets crashed by more than 30% in March 2020 amid the pandemic, TSX utilities at large corrected only by around 15%.

As markets take an ugly turn amid the economic downturn, investors take shelter in defensives like utilities. The less-volatile stocks protect capital, generating a decent amount of passive income at the same time.  

Canada’s top utility stock Fortis (TSX:FTS) has seen several downturns in the past and has emerged even stronger. It derives almost its entire earnings from regulated operations, enabling stable dividends. CU stock currently yields 4%, higher than TSX stocks. It has increased shareholder dividends for the last 50 consecutive years. Such a long payment streak indicates stability and reliability.

Utility stocks outperform when interest rates decrease and vice versa. So, as rates turned higher, TSX utility stocks notably underperformed last year. But since rates might hold steady or move lower going forward, utility stocks will likely surge higher. Bonds will become less attractive in the falling rate environment, making utilities more appealing.

Another factor is improved profitability. Utilities are a capital-intensive business and they generally carry a large amount of debt. So, as interest rates fall, their debt servicing costs also fall, ultimately improving their bottom line.

High payout ratios and stable profitability

Canadian Utilities (TSX:CU) is another safe and reliable dividend-payer name investors can consider. It has increased its net income by 2% compounded annually in the last decade. That’s much lower compared to broader markets. However, utilities keep growing steadily even in recessions, thanks to the stable demand for their services.

Another differentiating factor about utilities is their high payout ratios. They give away a big portion of their earnings in the form of dividends. For example, it is common for utilities to have a payout ratio of around 70%–80%, whereas the broad market average is around 20%. Canadian Utilities distributed 85% of its earnings in dividends last year.

Conclusion

If a recession occurs in the near future, fast-growing sectors like tech and consumer discretionary will bear an oversized brunt of the downturn. That’s because their earnings have a high correlation with economic cycles. However, defensives like utilities will likely outperform. Stocks like CU and FTS offer a decent low-risk, moderate return proposition, which will stand tall in volatile markets.   

The post Why TSX Utility Stocks Look Appealing Right Now appeared first on The Motley Fool Canada.

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The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

It’s quite a challenging run for the markets so far in 2023. Stocks have rallied, despite increasing recession fears and severe macroeconomic challenges. It seems prudent to say on the safer side and bet on the defensives. Here are three reasons why Dollarama looks like an appealing bet.

Dollarama stock continues to outperform

Dollarama has truly been an all-weather stock that has played well in the bull as well as in bear markets. Its outperformance since late 2021 has been quite noteworthy as many growth names plunged on macroeconomic woes.

DOL stock looks well placed in the current environment even when it is trading at its all-time highs. An expected recession might force market participants toward relatively safer options like Dollarama, ultimately pushing it higher.

Fundamental business strength and stellar financials

Dollarama sells merchandise and other household products at its 1,486 stores across Canada. The store count has been its key competitive advantage over peers. It aims to reach a store count of 2,000 by 2031. There has been a positive correlation between its number of stores and its financial growth. The same has played well for shareholder value all these years.

Dollarama sources its products from low-cost suppliers in countries like China. Its effective supply chain has driven industry-leading operating margins of upwards of 20%. That’s quite a feat considering thin margins in the retail industry and steep competition.   

Many companies saw margins squeeze in the last few quarters due to rising rates and adamant inflation. However, Dollarama has shown admirable margin stability, highlighting its business strength. It also offers a unique value proposition to its customers that should stand particularly winning in this rising cost environment. 

Stock buybacks and valuation

Dollarama regularly buys back its stock as a way to distribute its excess cash among shareholders. It has repurchased 40% of its outstanding shares since 2012, indicating its balance sheet strength and a long-term commitment toward shareholder value.

It is currently trading 30 times its earnings and does not look significantly cheap. Dollarama’s premium valuation indicates investors’ higher growth expectations. Plus, it deserves a premium valuation multiple due to its long-term outperformance and dominating market position.

Investor takeaway

Dollarama will likely keep beating the market due to its earnings growth potential and margin stability. It offers a combination of defensive and growth stocks that will likely stand tall in an impending recession. Dollarama’s stability should play also well in these uncertain markets.

The post 3 Reasons Why Dollarama Stock Is a Buy in May 2023 appeared first on The Motley Fool Canada.

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

Canadian Natural Resources

This will be the big value driver for TSX energy stocks in 2023 and beyond. Consider the country’s biggest oil producer Canadian Natural Resources (TSX:CNQ). Like peers, it currently distributes 50% of its free cash flows to shareholders. But later this year or early next year, it aims to give away 100% of its excess cash to shareholders.

Free cash flows are cash flow from operations minus capital expenses. These can be used for debt repayments, acquisitions, and shareholder returns. When a company consistently grows its free cash flows, it typically generates decent shareholder value.

In case of energy companies, they have been seeing superior free cash flows due to relatively higher oil prices. They aggressively repaid debt last year and attained some of the best financial positions ever.

Canadian Natural repaid almost $11 billion of debt in the last two years. Its leverage ratio, around 3 times pre-pandemic levels, has now fallen to 0.6 times.

As the company is already on track meeting its debt target, shareholder returns will be the priority for the next few years. Its excess cash allocated toward shareholder returns will likely create significant value.

CNQ’s long life, low decline asset base plays well even with these oil prices. The stock has lost 6% in the last 12 months but has returned 275% in the last three years. The dividend yields a decent 4.5%. The oil giant’s operational efficiency, strong balance sheet, and earnings growth potential should drive value in the long term.

Tourmaline Oil

Canada’s biggest gas producer Tourmaline Oil (TSX:TOU) is another appealing pick in the TSX energy space. It produces natural gas from some of the prolific reserves in Canada and sells it to diversified markets like California. Moreover, it also owns key infrastructure like pipelines and storage tanks that improve its operational efficiency.

Like CNQ, Tourmaline also repaid billions of debt and strengthened the balance sheet in the last few years. Its leverage ratio improved from 1.5 times in 2020 to 0.08 times in Q1 2023. As the debt balance is reduced, the company’s interest expenses drop, which ultimately improves its profitability. We might see this materializing for many energy companies this year.

Tourmaline Oil is expected to report free cash flows of $2 billion this year, a large drop from last year. However, as debt repayments will not form a large chunk this year, dividends and buybacks will be its key priority. TOU paid total dividends of $7.90 per share last year, indicating a payout ratio of 60%. While it may not pay dividends like last year, Tourmaline still looks well-placed to reward shareholders.

Note that natural gas prices have fallen 70% in the last 12 months, but TOU stock has fallen by merely 20%. That’s because of its diversified product base, exposure to premium markets, and strong financials. It will likely create significant value in the medium to long term once gas prices shrug off the ongoing weakness.

The post The Top TSX Energy Stocks to Buy This Summer appeared first on The Motley Fool Canada.

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The Motley Fool recommends Canadian Natural Resources and Tourmaline Oil. The Motley Fool has a disclosure policy.  Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

Whitecap Resources

Oil prices have been trending lower in the last few months despite solid fundamentals. However, investors should note that even at current prices, energy production companies are reporting a decent amount of free cash flows. Whitecap Resources (TSX:WCP) is one such example. It recently put up a handsome show with its first-quarter earnings numbers.

Whitecap’s production rose 10% in Q1 2023 due to its recently completed acquisitions. The clean energy producer posted free cash flows of $215 million in the same quarter, marking nice 20% growth year over year. The company could see superior production growth, especially in the prolific Montney play, driven by its inorganic growth.  

Energy companies have seen such earnings growth before. But what stands out this time is their stellar balance sheets. They are in some of their best financial positions ever, thanks to their capital discipline and aggressive debt reductions. In the case of Whitecap, its leverage ratio currently stands at 0.6 times, among the lowest historically.

WCP stock currently yields a decent 6%, higher than Canadian energy bigwigs. Interestingly, its dividend is funded even when the crude oil price falls to US$50 a barrel.

The stock has returned 7% in the last 12 months. WCP is trading at 7 times free cash flows and looks undervalued compared to TSX mid-cap peers. It makes sense to bet on energy stocks like WCP with their improving balance sheets, earnings growth visibility, and stable dividends.

North West Company

North West Company (TSX:NWC) sells groceries to rural communities in Northern Canada and beyond. While that seems like a boring business, it has generated stable wealth for shareholders over the years. Its revenues have grown by 5%, while its net income has increased by 10% compounded annually in the last decade. Such stable growth with admirable margin stability speaks for its fundamental business strength.

NWC stock has returned 16% in the last 12 months and 70% in the last five years. The rural retailer is currently trading at 15 times its earnings and looks undervalued. It offers a stable yield of 4%, higher than broader markets. Considering the decent earnings growth potential and dividends, NWC looks a like an appealing investment proposition.

North West Company’s long-term average return on capital ratio comes out to a stellar 17%. The return on equity ratio is at around 25%, indicating robust profitability. Apart from profitability, the retailer with over 3.5 centuries of experience selling to Canadians has a solid balance sheet position with low debt and high liquidity.

NWC will likely play well and outperform as the market downturn seems in sight. Its stable earnings, dividends, and less volatile stock should stand tall in volatile markets.   

The post 2 Undervalued TSX Stocks With a Legit Shot at Beating the TSX appeared first on The Motley Fool Canada.

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The Motley Fool recommends North West and Whitecap Resources. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

Enbridge

Canadian energy midstream giant Enbridge (TSX:ENB) currently yields a juicy 6.7%. It has a long payout history and has increased dividends for the last 28 consecutive years. Its earnings stability stands tall in uncertain markets and plays well for investor returns.

Enbridge’s per-share earnings have grown by 6% compounded annually in the last decade. Even when oil and gas prices were weak, it managed to grow steadily because of its stable business model. It earns revenues mainly from its long-term, fixed-fee contracts, facilitating earnings visibility.

The company’s balance sheet strength and earnings stability will likely drive consistent dividend growth in the long term. It aims to maintain a 60-70% annual payout ratio, which is in line with the industry average.

If you are looking for capital appreciation, ENB might not be an apt choice because of its low correlation with oil prices. However, if stable passive income is what’s on your mind, its superior yield and stability will likely delight you.

Canadian Utilities

A top utility stock Canadian Utilities (TSX:CU) offers even greater stability with a dividend yield of 5%. It is one of the classic defensive bets to protect your portfolio in volatile markets.

It generates almost all of its earnings from regulated operations, which brings visibility and predictability. Earnings of utility companies do not move based on economic cycles, and that’s why they are considered non-cyclical.

The demand for their services remains constant in recessions and even in economic booms. This makes their cash flows and dividends much more stable. As a result, Canadian Utilities has increased its shareholder payouts for the last 50 consecutive years.

Moreover, interest rates and utility stocks trade inversely to each other. As the rate hikes are expected to pause, it will be a big positive for them. If they start moving lower, probably later this year or early in 2024, investors can see a decent upward move in utilities.

BCE

The telecom sector has fairly similar stability as the utilities. Canadian telecom giant BCE (TSX:BCE) is one compelling bet for dividend seekers. It yields a decent 6%, way higher than TSX stocks.

BCE is the biggest by market cap among the three-payer-dominated Canadian telecom industry. Its earnings have grown by 2% compounded annually in the last decade. That’s an insignificant growth compared to broader markets. But when stability is more important, growth has to take a backseat.

BCE has accelerated its capital expenditures in the last few years, mainly to improve its network infrastructure. A large portion of this capex went for network improvement, which will likely play well for subscriber base growth.

It will likely keep growing steadily with its large subscriber base and capital investments. BCE has some of the strongest balance sheets in the sector, with a solid liquidity position and manageable leverage. Investors can expect regularly growing dividends along with decent capital returns in the long term.

The post 3 Top Canadian Dividend Stocks Yielding Over 5% in May 2023 appeared first on The Motley Fool Canada.

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The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned

This time last year, Vermilion Energy (TSX:VET) stock was the talk of the town due to its huge market-beating surge. The Canadian mid-cap energy producer is again in the news in 2023 but for being a consistent laggard.

What’s next for Vermilion Energy stock?

It doubled last year till August 2022 but has been on a constant decline since then. It has lost 25% so far, way underperforming TSX energy stocks’ 6% dip this year. Mainly the gas price correction in European markets and a windfall tax burden have weighed on it.

Vermilion Energy is a $2.6 billion energy upstream company that has operations in North America, Europe, and Australia. Almost 67% of its production comes from North America, while the rest is international. Its huge gas operations in Europe drove the financial growth last year, thanks to the gas price surge after the Russia-Ukraine war.

Vermilion produced 82.4 thousand barrels of oil equivalent per day in Q1 2023, marking a 4% drop year over year. The decline came due to an unexpected downtime in Australia. Free cash flows halved during the quarter due to lower production and windfall taxes.

Windfall taxes and Vermilion

Oil and gas prices shot up after the Russia-Ukraine war last year. Energy production companies were some of the biggest beneficiaries of this. Interestingly, they saw a significant earnings boost in the last few years, despite keeping production somewhat constant. This did not go well with regulators.

As a result, European authorities levied windfall taxes, called Solidarity Contribution, of at least 33% on energy producers. While Vermilion’s international reserve has been its key competitive edge over Canadian peers, the same has weighed on its growth in 2023.

Vermilion has attained its best financial position ever with rapid debt repayments. At the end of Q1 2023, it had net debt of $1.4 billion and a leverage ratio of 0.6 times. Almost all energy producers have seen balance sheet improvements as they focused on debt reductions. The industry-average leverage ratio was around 3 times before the pandemic, which has now improved to 0.5 times.

As many have already achieved their debt target, they distribute around 50% of their free cash flows to shareholder returns in 2023. In Vermilion’s case, it intends to distribute 25%–30% of its free cash flows via dividends and buybacks. Some of the bigwigs will move to distribute 100% of their excess cash to shareholder returns later this year.

Investor takeaway

So, Vermilion’s weakness has been evident to some extent. However, the same has made it some of the cheapest stocks in the sector. For example, it is trading 3.5 times its 2023 free cash flows, while the sector average is around 7 times. If the gas prices recover, we could see a massive surge in VET stock, driven by its depressed valuation and earnings growth potential.

The post Vermilion Energy Stock Skyrocketed in 2022: Can It Recover From the Sluggish Start in 2023? appeared first on The Motley Fool Canada.

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The Motley Fool recommends Vermilion Energy. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

MEG Energy

MEG Energy (TSX:MEG) stands tall in the TSX energy space with its long reserve life. The stock has lost 17% since April 2023 but has been a significant value creator since the pandemic.

Despite the rally, the stock is currently trading at 10 times its earnings and 6 times its free cash flows. That’s relatively cheap compared to peer TSX energy stocks, which are trading 7 times free cash flows.

MEG aims to produce 105,000 barrels of oil equivalent per day in 2023, nearly 10% higher than in 2022. It produces thermal oil with its highly efficient SAGD (steam assisted gravity drainage) operations.

Apart from the operational growth, the company has seen significant financial improvement in the last few years. It has repaid a large chunk of its debt since Q1 2021, which has notably strengthened its balance sheet.

MEG currently distributes 50% of its free cash flows to shareholders via buybacks. It does not pay dividends but the buybacks could provide a floor to the stock. MEG looks fundamentally strong, given its solid balance sheet position and earnings growth visibility. The undervalued stock could rally higher and outperform peers should oil move higher.

B2Gold

Gold has gained 14% in the last six months, notably beating broad market indexes. It will likely keep trading higher this year, because of the supporting macroeconomic environment. A potential pause on rate hikes should stabilize the dollar, which will likely make the bullion appealing. Moreover, recession expectations should push market participants toward the traditional safe haven.    

Higher prices should benefit gold producers. Canadian producer B2Gold (TSX:BTO) is one compelling name from the TSX gold miners’ space. It has returned 9% in the last 12 months and 60% in the last five years.

Thanks to higher inflation, B2Gold’s all-in sustainable costs have increased from $888 per ounce in 2021 to over $1,200 this year. As the realized gold prices remained lower till late last year, gold producers saw pressure on margins. However, the recent gold price surge should come as a respite for them.

BTO is a relatively undervalued name compared to peers, trading at 19 times earnings. Its solid liquidity position and negligible debt speak about its fundamental strength and make it stand tall among its peers.

Bank of Montreal

Canadian banks are some of the best and stable financial institutions to watch amid an impending economic downturn. Among the big six, Bank of Montreal (TSX:BMO) is one of my favourites and will likely outperform its peers.

It is currently trading at a price-to-book value ratio of 1.2 times against the industry average of 1.3 times. Like peers, BMO stock has also been on a downtrend due to the regional banking fiasco in the US and an expected recession.

However, BMO seems well-placed to tackle the downturn due to its stable earnings and superior credit profile. It has one of the best CET1 (Common equity tier 1) ratios of 18.2%, way higher than peers. Moreover, BMO has the longest-running dividend payment streak of 194 years for any Canadian company. The Big Six Bank stock yields a decent 4.8%, in line with its peers.

The post 3 Remarkably Cheap TSX Stocks to Buy Right Now appeared first on The Motley Fool Canada.

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The Motley Fool recommends B2Gold. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

So, what’s exactly happening with BlackBerry?

Early this month, BlackBerry announced that it is considering a reconfiguration of its business portfolio. Now, for those who don’t know, once smartphone maker BlackBerry now functions mainly through two verticals: cybersecurity and the Internet of Things (IoT).

Even though both these are jazzy businesses that offer handsome growth prospects, the company has been seeing quite uneven growth. Nearly 60% of its total revenues come from the Cybersecurity segment, while the IoT obtains around 35%. The rest comes from the Licensing segment.

BlackBerry’s revenues have been on a steady decline for the last few years, thanks to a dip in its core Cybersecurity segment. To be precise, it posted revenues of US$656 million for the 12 months ended on February 28, 2023, a drop from US$2.16 billion in 2016. The cybersecurity business is exposed to steep competition and has thus seen a burden on margins.

At the same time, IoT remains the bright spot for BlackBerry. This vertical posted a decent 16% top line growth in the fiscal fourth quarter. Notably, the surge came despite snaps in the global automotive markets. Moreover, this vertical also derives superior margins than the other segments, upwards of 80%.

A split could be value accretive

Shareholder value creation has taken a toll, as these two verticals seem to be going on different growth paths. As a result, the company has taken up a review to consider a potential separation of its businesses. Investors cheered the move on prospects of better value creation.

The management is more optimistic about the IoT segment’s growth. In Q4 2023 earnings call, the company provided guidance of 20% revenue growth for fiscal 2024, mainly due to easing challenges in the global auto market. BlackBerry QNX is the highlight in this segment. It’s software for cars that enables a more customized and interactive driving experience. It had a record US$640 million new royalty backlogs last year.

In the cybersecurity segment as well, the management expects a decent 5% revenue growth in the next fiscal year. If the guidance materializes, it will likely bring a huge reward for the stock, particularly after such a steep long-term revenue decline.

Plateauing inflation indicates that interest rate hikes could pause in the near future. This will be a positive development for tech stocks. But it seems already baked in considering their recent rally. It will be interesting to see how they play out in the second half of 2023, especially when an economic downturn seems on the cards.

Investor takeaway

BlackBerry’s upbeat guidance and portfolio reconfiguration highlight management’s focus on shareholder value creation. Although it seems logical to separate the IoT vertical from the lagging Cybersecurity segment, that does not warrant a sure-fire value creation. The challenges like heavy capex needs and competition will likely still be there. In the long term, revenue growth and margin stability remain the key factors that will drive the value.

The post What’s Behind BlackBerry Stock’s Recent Surge? appeared first on The Motley Fool Canada.

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Baytex Energy

Baytex Energy (TSX:BTE) stock is currently trading 3 times its earnings and notably undervalued. In comparison, TSX energy stocks are trading 7 times earnings. BTE has lost 28% in the last 12 months but has returned 900% in the last three years.

These depressed valuations for both the sector and BTE look unjustified to some extent because of their fundamental improvements. For example, like peers, Baytex Energy is sitting at some of its best financial positions ever. Declining debt and decent free cash flow growth prospects make BTE a compelling bet.

Moreover, Baytex’s asset base is expected to become mightier with its recent Ranger Oil acquisition. With this expansion in the US Eagle Ford Basin, Baytex will double production in the next few years.

Not all the growth factors seem baked into BTE stock. So, if oil prices soar higher from here, Baytex will likely outperform.

Air Canada

Canada’s biggest passenger airline stock Air Canada (TSX:AC) has soared a soothing 15% in the last two weeks. Such a jump has been quite rare for AC stock in the last few years after its back-to-back challenges.

AC stock showed some optimism after the management upped its guidance for 2023. Air Canada expects its operating profit to come to around $3.8 billion this year, a significant jump from its previous guidance of $2.7 billion. Despite a gloomy global growth outlook and higher inflation, the flag carrier expects higher profits. That’s mainly due to higher demand and lower-than-expected jet fuel prices. That’s a terrific development for Air Canada and its investors.

In the Q4 2022 earnings call, the management in fact provided a bleak outlook on the cost front due to inflation. However, the updated guidance indicates a faster-than-expected return to profitability even in a challenging environment.

Based on the guidance, AC stock is currently trading at an EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) valuation of 4 times. That’s much lower than peers’ average of around 6 times. Air Canada will likely emerge stronger this year fueled by its long-awaited profitability and improving balance sheet position.

goeasy

Canada’s top consumer lender goeasy (TSX:GSY) has surged a nice 25% in the last two weeks. This came as a relief rally as the company maintained its guidance even after considering the impact of proposed lower annual interest rates.

The lender primarily caters to non-prime borrowers and charges sky-high interest rates. Now the Canadian government is considering lowering the maximum annual interest rates from 47% to 35%. Investors saw it as potential damage to goeasy’s growth and dumped the stock in March 2023.

However, its record Q1 2023 earnings and updated guidance quelled the markets. For 2025, the management expects the total yield on consumer loans at 33%, down from 34%. It expects operating margins to remain intact at over 38% and return on equity to exceed 22%.

GSY has seen terrific growth in the last decade, despite being in such a risky industry. The alternative lender is currently trading 11 times its earnings and looks undervalued. If the company’s guidance materializes, as it has comfortably done in the past, the non-prime lender will likely create meaningful shareholder value.

The post 3 TSX Value Stocks That Could Outperform in 2023 appeared first on The Motley Fool Canada.

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.