Don't Miss AI's Third Wave
In the current landscape of undervalued stocks, four Canadian companies stand out for their unique strengths and market positioning. Each company has seen recent challenges. Yet their financial fundamentals, growth strategies, and market dynamics suggest significant potential upside, making them compelling choices for value investors.
BCE
Starting with BCE (TSX:BCE), Canada’s telecommunications giant, this undervalued stock has faced some recent setbacks in traditional media and product sales, with revenue down by 1.8% last quarter. Despite this, BCE reported record-breaking earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 45.6% for the quarter, marking its best performance in over three decades.
The undervalued stock also saw a 10.3% rise in free cash flow, signalling strong cash generation that aligns with BCE’s financial strategy. The telecom leader’s digital media revenue rose 19%, boosted by popular streaming platforms like Crave, while its expansion into fibre technology and the recent acquisition of Ziply Fiber should bolster cash flow and increase its market reach in the U.S. BCE’s stock price has been pressured. Yet its 10% dividend yield, coupled with its resilient cash flow, provides an attractive entry point for income-oriented investors looking for long-term stability.
Payfare
Payfare (TSX:PAY), a fintech company serving gig economy workers, offers a unique play in the digital financial services space. Revenue was up 25% year over year, and Payfare stock has shown significant growth. However, it missed some earnings expectations due to rising operational expenses. Payfare’s focus on instant digital payments meets a growing need as more individuals turn to gig and flexible work — a trend expected to continue.
Revenue growth is expected to moderate. Yet, Payfare’s current valuation, marked by a low price-to-sales ratio and a forward price-to-earnings (P/E) of around 12.12, indicates the market may be underestimating its potential. For investors willing to navigate some volatility, Payfare could offer substantial returns as it scales in an expanding market and refines its cost structure to improve margins.
Stella-Jones
Stella-Jones (TSX:SJ) a leading supplier of utility poles, railway ties, and lumber, has a strong foundation in North America’s infrastructure sector. While it experienced a 4% decline in sales last quarter, the company managed to maintain an impressive 17.7% EBITDA margin. As infrastructure demands rise, Stella-Jones stands to benefit from its diversified customer base and essential product line, providing consistent demand regardless of broader economic trends.
The undervalued stock’s recent $400 million bond offering has fortified its capital position, allowing it to pursue acquisitions and expand its footprint in North America. With a forward P/E of just 12.5 and a stable dividend yield of 1.55%, Stella-Jones appears to be undervalued, offering both income potential and steady long-term growth for value-focused investors.
Barrick Gold
Barrick Gold (TSX:ABX) offers a different kind of appeal with its focus on precious metals and recent diversification into copper. The undervalued stock has faced headwinds, missing production targets and struggling with increased operational costs. However, as gold prices remain high, Barrick’s strong portfolio and focus on debt-reduction position it well for future growth.
The undervalued stock’s expansion into copper aligns with the growing demand for this metal in renewable energy and technology, adding another layer of resilience to its business model. Barrick’s fundamentals, offering low debt, substantial cash flow, and a forward P/E of 9.55, suggest that the company’s stock is currently undervalued. For investors interested in precious metals with a mix of stability and growth potential, Barrick remains a top choice.
Bottom line
BCE, Payfare, Stella-Jones, and Barrick Gold each offer unique value propositions for different types of investors. BCE stands out with its high dividend yield and stable telecom base, ideal for income-seeking investors. Payfare, while more volatile, offers substantial growth potential in the digital finance space, addressing a rapidly expanding market of gig economy workers. Stella-Jones provides a steady, infrastructure-centered growth model with dependable demand, while Barrick brings precious metals exposure and a promising venture into copper. Together, these stocks provide diversified exposure across industries with strong fundamentals, attractive valuations, and significant upside potential.
