The US market is getting pretty sparkling these days, so much so that US-based investors may be inclined to look for bargains north of the border. There are too many battered Canadian value stocks to count. It’s quite strange to attend the TSX Index flirt with new heights, while many unloved Canadian deals remain on the sidelines.
In this article, we’ll take a look at two of the cheapest stocks that are so insanely cheap that value investors may think there’s a catch. Without a doubt, the value traps have led many new investors to their demise. It can be difficult for newbies to tell the difference between a highly discounted value stock and a “cheap” stock that is on the way to getting even cheaper.
This is why it is worth doing some extra homework in a great value set to make sure that there are no hair or flies in the pomade that you may not have seen at the departure.
Bargain hunters: freezing value stocks in a hot market
In this article, we’ll take a closer look at two of the cheapest stocks on the TSX these days based on traditional valuation metrics. Each name, I believe, is in fact undervalued and not only prepares for an adverse environment that could lead to multiple expansion of benefits and considerable pain for offenders.
Enter Waterfalls (TSX: CAS) and Financial IA (TSX: IAG), two unloved Canadian stocks with single-digit price-to-earnings (P / E) ratios and attractive dividend yields of 2% and 2.9%, respectively.
Cascades: one of the cheapest Canadian stocks
Cascades is a manufacturer of tissue paper products that makes good use of recycled fibers. Without a doubt, facial tissues and napkins are not a sexy affair, especially in an age when the appetite for speculation is high. Nonetheless, I find the strongly discounted multiple, juicy dividend, and ESG-friendly nature of the company to be attractive at current levels.
While the demand for these paper products tends to be stable over time, fluctuations in input costs tend to cause wild fluctuations in inventory. Lately, some pressure has been taken off the shoulders of paper products companies, Cascades included.
As industry conditions improve and the company continues to improve its operations in North America, I think the stock is unlikely to remain so depressed for an extended period.
Today the stock is trading at 7.9 times earnings and 0.3 times sales. There are Inexpensive, Very Inexpensive and Inexpensive Cascades. With a beta close to zero, I think Cascades is one of the more opportunistic defensive value options in today’s rocky market.
IA Financial: deep value in the financial space
IA Financial is one of my favorite non-bank insurers in Canada. In previous articles, I’ve noted that many Canadians like the discounted stock for its below-average dividend yield (just under 3%) and modest growth profile. Without a doubt, there are sexier and more flourishing options in the insurance business. But if you’re all about the margin of safety, I’d say it’s hard to compare to $ 66 AI stocks and switch.
The stock is trading at 9.6 times earnings and 0.5 times sales, one of the lowest entry prices in a 3% yield these days. While the beta of 1.46 implies that the IA stock is more volatile than average, it’s important to remember that volatility doesn’t necessarily imply risk. The depressed valuation suggests a fairly wide margin of safety on a name that has repeatedly proven itself to be one of the most conservative players in its corner of the financial arena.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer. .
Foolish contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.