Well, September is here. With summer firmly behind us, it’s a good idea to take stock, see where we’re at, and reposition our portfolios for the coming months and years. With this in mind, let’s take a look at two Canadian stocks that remain dirt cheap as we head into the autumn months.
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Cineplex stock
The first Canadian stock I’ll highlight is Cineplex Inc. (TSX:CGX). We all know Cineplex as the dominant Canadian theatre exhibition company, with movie theatres all across Canada. We also probably know that this company and, in fact, the whole industry, was decimated by the pandemic as well as a writer’s strike.
But today, movie theatres remain open and ready for business. The pandemic is comfortably in the rear-view mirror, and movie content problems brought on by the writers’ strike are history. What we are left with is a recovering industry, cheap valuations, and a great opportunity with Cineplex stock. Simply put, the company has a lot to look forward to, as it’s back on the path to achieving more normalized results.
In Cineplex’s latest quarterly call, management was very optimistic about its future, describing what they see as a “pivotal change” that signals a strong rest of the year. For example, June attendance levels were 72% of pre-pandemic levels and July attendance levels were 76% of pre-pandemic levels. Also, box office revenue hit 90% of pre-pandemic levels in June and 94% of pre-pandemic levels in July, with expectations of even higher attendance levels in August.
All that is really good news – but there’s more. As a reflection of the optimism that Cineplex’s management is feeling, they also announced a share buyback program authorizing the buyback of up to 10% of the total shares outstanding. Management believes, as I do, that the shares are trading well below their intrinsic value, and so this is a good way to return capital to shareholders.
Cineplex stock is up 32% so far this year, but I expect more to come, as the shares remain cheap.
Suncor stock
As Canada’s leading integrated oil and gas giant, Suncor Energy Inc. (TSX:SU) has a long history of success. But somewhere along the way, the company lost its edge, and things began to fall apart. A less-than-favourable safety record as well as operational inefficiencies and challenges hit the company and, of course, the stock.
This led to a few rough years, with Suncor stock underperforming its peers pretty significantly. Today, the stock remains cheap. And this is a great opportunity for us investors. You see, Suncor’s business model is one that generates pretty significant and sizable cash flows, which are quite reliable.
The reliability of Suncor’s cash flows is supported by the company’s integrated business model. This means that Suncor has both upstream (exploration and production) and downstream (refining) operations. This gives the company a more stable and steady profile over time, as these two businesses often complement each other.
Suncor has been on a streak recently, beating expectations as the company continues to cut costs and improve efficiencies. As a result, Suncor stock has rallied 14% so far this year. But this rally is not over, in my view. The stock remains cheap, trading at a mere 9.5 times expected earnings and 1.5 times book value, and generating a very healthy return on equity of 18%.
The bottom line
In closing, I’d like to reiterate that while these two cheap Canadian stocks had good reason to be cheap, today, this is no longer justified. In my view, improvements in both the company-specific level and macro environment will drive these stocks higher.
