Don't Miss AI's Third Wave
The tech scene has become incredibly hot in recent months, perhaps too hot for most value-conscious investors. As a value investor, you don’t need to chase. You should let things cool and come back down to levels that entail some margin of safety.
That way, you’ll minimize your odds of getting hit with huge, difficult-to-recover-from losses over a short-term basis and can increase your odds of a market-beating investment. Indeed, it can be tough to resist the pull of super-sized gains enjoyed by the technology studs.
However, one must always focus on where a stock is going to be headed next, not where it’s already been. Indeed, a hot stock with a strong past year of performance is not useful information to you. Strong fundamentals, a decent valuation, and brilliant managers are the factors that can help you get a good value for your investment dollar in any sort of market environment — bearish or bullish.
In this piece, we’ll look at two stocks I view as undervalued. Though big gains may not be in the cards for the next six months, or the next six quarters, I think your odds of doing well versus the market averages are pretty good over the next six years.
Without further ado, let’s look at the names:
Power Corporation of Canada
Power Corporation of Canada (TSX:POW) is an intriguing financial stock that commands a juicy 6.11% dividend yield. The stock is fresh off an 18% dip off 2021 highs and could be in a spot to reward income investors with patience.
Undoubtedly, POW stock has not done a heck of a lot over the past 10 years. Still, the financial service-focused holding firm offers a great deal of income-generating assets at a pretty modest multiple. If you’re bullish on insurance and wealth management, POW stock is one of the more bountiful plays out there.
At 17.74 times trailing price to earnings, POW stock is an intriguing value option. Nobody knows when the stock will begin marching much higher again. However, I do think Mr. Market is underpricing shares by a bit.
Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) is one of my favourite stocks in Canada’s financial scene. I like it even better than Power for young investors who are okay with a much smaller dividend yield (1.37% at writing). The star of the show has been capital gains, with FFH blasting off to new highs on the back of stellar quarters.
Prem Watsa, the top boss behind Fairfax, is a smart man. And I think it’s wise to ride on his coattails, as Fairfax finally sees the tides turning in its favour. I praised FFH stock when it sunk to extreme depths back in 2020. The easy money has already been made.
However, I don’t think that’s enough reason to ditch the stock. I think it’s a winner that will continue winning the second half, as investments pay off while insurance operations continue to show off impressive results.
At 10.7 times trailing price to earnings, FFH stock looks incredibly undervalued, with earnings expected to march much higher over the coming years.
Bottom line
The financial scene is rich with undervalued opportunities. If you seek yield, Power Corp. looks intriguing on the dip. For everyone else, FFH stock is tough to ignore right here. Prem Watsa is back, and he’s ready to take the company to the next level!
