Buy These 3 Cheap Stocks Before the Market Comes to its Senses

Stocks such as NFI Group Inc (TSX:NFI) are currently mispriced. Now is the time to accumulate shares in these cheap stocks.

| More on:
TIMER SAYING TIME FOR ACTION

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Value: it can be tough to find. Despite recent volatility, the markets are in the midst of one of the longest bull runs in history. This makes it tough for value investors.

That being said, mispriced assets can be found regardless of market conditions. One of the most underrated value metrics is the price-to-earnings-to-growth ratio (PEG). The PEG ratio was made famous by famed value investor Peter Lynch.

The PEG ratio addresses the shortcomings of the P/E ratio in that it compares current valuation against future growth expectations. Typically, the P/E is compared against five-year average growth rates. In general, a PEG under one is a sign that the company’s share price is not keeping up with expected growth rates. It is thus considered undervalued.

Another item to consider: the company’s forward P/E ratio should be lower than its current P/E ratio. The forward P/E compares the existing price against, next year’s earnings. If this number was higher, it would indicate lower year-over-year growth. This could be a warning sign.

Combined, these two simple metrics can help identify stocks that are trading at cheap valuations and that are expected to grow over the short and long term. With that in mind, here are three of the cheapest stocks on the TSX.

Martinrea International

The auto parts sector has been decimated. Most companies in the sector are trading near all-time low valuations. Martinrea International (TSX:MRE) is no exception.

Martinrea is trading at a ridiculously low 5.37 times earnings and 3.37 times forward earnings. One of the best ways to make money in a beaten-down sector is to invest in companies who are expected to grow regardless of the macro environment.

Martinerea fits that description. It is expected to grow earnings in the low teens annually over the next five years and has a PEG ratio of 0.33. It is the perfect time to accumulate shares in anticipation of the next upwards industry cycle.

NFI Group

NFI Group (TSX:NFI) operates in a niche industry. It is a leading North American manufacturer of buses and motor coaches. Recent operational and supply chain issues have hit the company’s performance. As a result, its stock has tanked losing 22% of its value in 2019.

The selloff appears overdone. Despite current headwinds, NFI is still expected to grow revenue and earnings at a double-digit pace over the next few years. It is trading near a decade-low P/E (15.49) and forward P/E (10.13).

With a PEG ratio of 0.45, the recent selloff is overdone and the market is not accounting for strong expected growth rates.

TFI International

Posting record numbers quarter over quarter, TFI International’s (TSX:TFII) current valuation is a head scratcher. It has done nothing but perform, topping expectations on a regular basis.

Year to date, TFI’s stock is up 9%, but at one point its stock was up 30% in 2019. Thanks to its recent downtrend, the stock is once again a bargain.

The company is trading at valuations not seen since the early 2000s. A current P/E of 10.82 is well below its five-year historical average of 26.82.

Although volumes and spot rates in the transportation industry have slowed, the company is mispriced. Especially when one considers the company is expected to grow earnings by almost 20% annually over the next five years. At a PEG of 0.5 and a one-year average price target of $53.07 (38% upside), TFI International is a steal at current prices.

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 Mat Litalien owns shares of TFI International Inc. NFI Group is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »