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The S&P/TSX Composite Index is down 14.45% from its 52-week high at the time of writing. The decline in Canada’s benchmark equity index mirrors the state of the broader equity market, indicating substantial discounts across the board. Most TSX-listed stocks are trading at 20-50% discounts from their all-time highs, but you can’t assume that not all discounted stocks are undervalued stocks.
If you are a value-seeking, bargain-hunting investor, you should try to identify companies that can offer exceptional long-term growth at discounted prices. Value stocks are companies that trade at prices significantly below their intrinsic values because the broader market has failed to price them against their long-term growth potential.
Today I’m going to discuss two arguably undervalued stocks that you can consider adding to your portfolio if you’re an investor looking for value.
easy (TSX: GSY) is worth $1.77 billion market capitalization alternative financial services company headquartered in Mississauga. The company is committed to providing unsecured installment loans to consumers who cannot qualify for loans from traditional lenders.
It also provides financial services to help its consumers finance various furniture, appliances and home electronics. It also offers home loans to subprime borrowers.
By offering a variety of short-term unsecured and long-term secured loans, the company has found a balanced business model that produces strong results. Its model allows goeasy to maintain a strong balance sheet, protecting itself with provisions for credit losses and healthy profit margins thanks to its interest rates.
The company has grown its revenue at a compound annual growth rate of 15.9% over the past decade, increasing its profits by 33.6% over the same period.
As of this writing, goeasy shares are trading at $111.67 per share and offer a dividend yield of 3.26%. Trading at almost a 50% discount from its 52-week high with a favorable forward price-earnings ratio of 7.75, it can be a good value bet for your portfolio.
TransAlta Renewables (TSX: RNW) is a $4.26 billion market capitalization renewable energy company headquartered in Calgary. It’s no secret that the whole world is planning to slowly switch to greener energy and phase out dependence on fossil fuels.
Announcements by various world leaders on policies to promote renewable energy have given a boost to the entire sector. However, the current energy crisis in Europe has led to an increase in demand for electricity from fossil fuels to compensate for the short-term deficit in energy demand, leading to a general decline in renewable energy stocks.
However, global fossil fuel supplies are limited and growing climate concerns will likely bring renewables back into the limelight, albeit gradually. Renewables will become the undisputed king of the energy industry in the long run. TransAlta Renewables generates stable cash flow from various diversified clean energy facilities in Canada, the United States and Australia.
It follows the lucrative business model of traditional utility companies with the advantage of focusing on renewable energy sources. While other utility companies will have to invest in the transition to renewable energy, the company will only have to invest in growth.
As of this writing, shares of TransAlta Renewables are trading at $15.96 per share and offering a hefty dividend yield of 5.89%. Trading at 19.79% off its 52-week high, that may not seem like too big of a discount. However, its long-term growth potential could make it a bargain at current levels.
It’s important to learn how to identify companies that show long-term value when looking for undervalued stocks. If you can identify and invest in such companies at the right time, you can unlock the potential for substantial long-term wealth growth by staying invested. Shares of goeasy and shares of TransAlta Renewables can be excellent investments for this purpose.