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It’s been a red-hot year for the TSX Composite Index, with many of the index’s top constituents setting new highs. For the year, the TSX Index is up 24%. Some of its individual constituents, such as banking and utility companies, are up even more than that. It’s been a great time for those who have been holding since the 2022 lows.
The decision to invest today is a little trickier. The TSX set an all-time high just a few days ago. It currently trades at just shy of 22 times earnings, which is a high multiple historically. Investors may wish to take profits and re-invest their money into cheaper alternatives.
That’s not to say there’s no value in the TSX at all however. To the contrary, some quality TSX stocks have failed to join this year’s rally and have become cheap as a result. In this article, I will explore three of them.
TD Bank
The Toronto-Dominion Bank (TSX:TD) is a Canadian banking stock that is up all of 0.06% year-to-date. The reason why the stock is performing poorly is because it is embroiled in a scandal. TD tellers in New York, Florida, and New Jersey got caught laundering money for drug cartels. As a result, TD was investigated by the U.S. Department of Justice (DoJ). TD expects to take at least $3.5 billion in fines related to the investigation.
Why is TD a good buy despite this scandal?
First, the bank is expecting to resolve the DoJ investigation by the end of the year, which would pave the way for a better year in 2025.
Second, the bank has spent large sums of money hiring money laundering and compliance experts to prevent future wrongdoing.
Third and finally, the bank is one of the cheaper North American banks right now, trading at just 1.3 times book value. Overall, its future looks promising.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is a Canadian gas station/convenience store company that has taken several hits this year. First, its fourth-quarter earnings disappointed investors, which sent the stock tanking. Then, it attempted to take over 7/11 for a steep price tag but was rebuffed by its Japanese owners. Finally, the stock was hit when oil prices unexpectedly dipped below $70. ATD sells gasoline and diesel, so its earnings go down when oil prices are weak.
Is ATD worth the investment today?
It’s certainly a very good company. As for the current valuation (22 times earnings or 15 times normalized earnings), it’s a little higher than I’d like to pay for a company of this type with only modest growth prospects. However, I’d say that someone who is willing to wait for the long haul will do reasonably well.
BCE
BCE Inc (TSX:BCE) is a Canadian telecommunications stock that is well known for its extremely high dividend yield. Coming in at 8.4%, it’s one of the highest yields to be found among TSX large caps. The company provides cellular, internet, and television service across Canada. Its revenue is growing but its net income has declined in recent years, thanks in no small part to rising interest rates. Today, interest rates are falling. That provides some hope that the company’s earnings will rise. The stock trades at 20 times earnings; however, if you assume that it can get back to its 2021 earnings level, it is cheap. The ratio of BCE’s stock price to its 2021 earnings level is only 15.
