2 Top TSX Stocks to Buy at a Deep Discount in October

Investing in quality undervalued TSX dividend stocks such as Whitecap and TD should help you deliver outsized gains right now.

| More on:
data analyze research

Image source: Getty Images

While the TSX Index trades near record levels, plenty of individual stocks are priced at a discount to their all-time highs. With interest rate cuts on the horizon and a strong job market, the economy seems to have avoided a full-blown recession, making the time ripe to go bottom fishing and identify quality undervalued stocks that trade at a cheap valuation in October 2024.

Here are two undervalued TSX stocks you can buy now to benefit from outsized gains when market sentiment improves.

Toronto-Dominion Bank stock

Toronto-Dominion Bank (TSX:TD) is among the largest banks globally. With a market cap of $151 billion, it trades 20% below all-time highs and has underperformed the broader markets recently due to elevated interest rates and a sluggish macro environment.

Moreover, the Canadian banking giant is under investigation for anti-money laundering practices in the U.S. In fact, TD Bank set aside $2.6 billion in fiscal Q3 2024 (ended in July) for anticipated fines from the U.S. Department of Justice.

This non-recurring line item meant that TD Bank reported a GAAP (generally accepted accounting principles) net loss of $181 million compared to a net income of $2.6 billion in the year-ago period. However, its adjusted earnings in the July quarter stood at $3.6 billion or $2.05 per share.

In Q3, TD grew its sales by 8% year over year driven by higher fee income in its markets-driven business, as well as higher volumes and deposit margins in Canadian Personal and Commercial Banking. The company explained that its provisions from credit losses (PCLs) were stable compared to Q2, showcasing solid credit performance.

TD has completed its restructuring program, which was announced in Q4 of fiscal 2023, delivering efficiencies across business segments. Moreover, TD ended Q3 with a CET1 (common equity Tier 1) ratio of 12.8%. This ratio measures a bank’s ability to absorb losses and maintain solvency during economic downturns.

Priced at 10.3 times forward earnings, TD Bank stock is relatively cheap, given that adjusted earnings growth is forecast to accelerate to over 9% between fiscal 2025 and fiscal 2028. Moreover, TD Bank pays shareholders an annual dividend of $4.08 per share, translating to a forward yield of 4.7%. These payouts have risen at a compound annual growth rate of 10.5% in the last 28 years.

Whitecap Resources stock

Another undervalued TSX dividend stock is Whitecap Resources (TSX:WCP), an energy company. Valued at $6.5 billion by market cap, Whitecap Resources pays shareholders an annual dividend of $0.73 per share, which indicates a forward yield of almost 7%.

Founded more than 15 years ago, Whitecap is an oil and liquids-weighted company. Armed with an enviable light oil resource base, Whitecap has increased its funds flow at a compound annual growth rate of 13% since 2010.

In Q2 2024, Whitecap generated free funds flow of $233 million or $0.37 per share. Given its quarterly dividend, the company has a payout ratio of less than 50%, providing enough flexibility to raise dividends and lower balance sheet debt.

Last year, Whitecap increased its dividends by 26% year over year, and it aims to lower its net debt by $1 billion in 2024.

Priced at 6.5 times forward earnings, WCP stock is cheap and trades at a 15% discount to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Whitecap Resources. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Female raising hands enjoying vacation, standing on background of blue cloudless sky.
Dividend Stocks

CRA Update: The Basic Personal Amount Just Increased in 2025!

The BPA just increased, leaving Canadians with more cash in their pockets and room to make more cash!

Read more »

dividends can compound over time
Dividend Stocks

3 Defensive Stocks That Could Thrive During Economic Uncertainty

Discover how NextEra Energy, Brookfield Renewable, and Enbridge combine essential services with strong dividends to offer investors stability and growth…

Read more »

hand stacks coins
Dividend Stocks

Canada’s Smart Money Is Piling Into This TSX Leader

An expanding and still growing industry giant is a smart choice for Canadian investors in 2025.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Contribution Limit Stays at $7,000 for 2025: What to Buy?

This TFSA strategy can boost yield and reduce risk.

Read more »

Make a choice, path to success, sign
Dividend Stocks

Already a TFSA Millionaire? Watch Out for These CRA Traps

TFSA millionaires are mindful of CRA traps to avoid paying unnecessary taxes and penalties.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Tech Stocks

Best Tech Stocks for Canadian Investors in the New Year

Three tech stocks are the best options for Canadians investing in the high-growth sector.

Read more »

Happy golf player walks the course
Dividend Stocks

Got $7,000? 5 Blue-Chip Stocks to Buy and Hold Forever

These blue-chip stocks are reliable options for investors seeking steady capital gains and attractive returns through dividends.

Read more »

Concept of multiple streams of income
Stocks for Beginners

The Smartest Dividend Stocks to Buy With $500 Right Now

The market is flush with great opportunities right now, and that includes some of the smartest dividend stocks every portfolio…

Read more »