Whether you are investing in your Tax-Free Savings Account (TFSA) (which would make up the bulk of the yearly contribution limit) or your Registered Retirement Savings Plan (RRSP), $5,000 is a decent enough amount. And it can turn into an impressive nest egg if you invest it in the right stocks. Three undervalued Canadian stocks (considering their price-to-earnings ratios, at least) might be good candidates for that.
Image source: Getty Images
An equity company
Alaris Equity Partners (TSX: AD.UN) has a slightly different business model and focus from many equity and asset management companies. They offer financial assistance and acquire a financial stake in distressed businesses or businesses that might simply require capital for growth and expansion, but that stake remains financial. They don’t seek control or interfere in the governance and operations of the businesses they invest in.
This makes them an ideal partner for businesses that might not mind sharing equity if they can retain complete control of their companies. Alaris sifts through the pool of such businesses with strict selection criteria.
As a business, Alaris has performed well over the years (mostly), but as a stock, it hasn’t been a consistent performer. It’s currently bullish and, with a price-to-earnings ratio of just 4.7, quite attractively valued. The icing on the cake is its generous 6.7% yield, making it a compelling buy.
An airline
Calling Air Canada (TSX: AC) just “an airline” might be a disservice. It’s the airline in the country, though the stock still suffers from post-COVID distress. At $18 per share, the stock is still trading at a 60% discount from its pre-pandemic peak. That doesn’t paint the picture of a very healthy stock, but there are a few things going in the way of Air Canada.
The first is its attractive valuation. The stock is trading at a price-to-earnings ratio of just 2.75. The company is increasing its organic business opportunities with its reward system and dynamic pricing. The company significantly increased its free cash flow in the last quarter, even though the revenues and operating income declined. Assuming there is a modest chance that the stock is going for a full recovery, it’s worth looking into.
An investment management company
Senvest Capital (TSX: SEC) is a Montreal-based investment management company. It has also developed and sold a range of businesses/assets over the years, including Canada’s first cable pay-TV channels. With a market capitalization of $952 million, it’s counted among the small-cap stocks.
As a stock, Senvest Capital has been an inconsistent but powerful grower, especially if you look at its long-term performance. It has returned about 122% to its investors in the last five years alone, and considering its 27% growth in the last 12 months, it’s on track to offer a similar performance in the next five years. The price-to-earnings ratio of four is another reason to consider this stock.
Foolish takeaway
All three undervalued stocks may offer significant growth opportunities, though it’s wise to look at factors beyond their current growth momentum or even historical performance. All three companies require different elements within their industries/respective markets to keep building positive momentum, and if the exemplary catalysts are not present, the undervaluation might not do the investors any good.
