Investment strategies popularized by renowned investors such as Warren Buffett and Benjamin Graham emphasize the importance of identifying undervalued stocks for potential high returns. As not every inexpensive stock presents a sound investment opportunity, it is crucial to select companies that are currently trading below their intrinsic value and have the potential to deliver significant returns when market sentiments improve. Here are two promising TSX-listed stocks that fit this criteria.
The first stock is Ensign Energy Services, which operates in the oilfield services sector in Canada and the U.S. Despite facing challenges in a tough macroeconomic environment, Ensign Energy Services has shown signs of a potential turnaround. Although its second-quarter financial results showed a decline in revenue and adjusted EBITDA compared to the previous year, the company has been actively reducing its debt and strengthening its balance sheet. With a positive outlook for the energy sector and a low trailing free cash flow multiple, analysts predict a potential upside of over 50% for Ensign Energy Services in the next 12 months.
Another undervalued stock worth considering is Data Communications Management, a small-cap company providing marketing and workflow solutions in North America. The company reported an increase in revenue and gross profit in the second quarter of 2024, with improving profit margins and strong free cash flow generation. With a focus on integration and growth initiatives, Data Communications Management is poised for significant growth potential, with consensus price targets indicating a potential surge of approximately 90% in the next 12 months.
Investors should exercise caution when investing in small-cap stocks like Ensign Energy Services and Data Communications Management, as they may be more susceptible to market volatility. It is advisable to diversify one’s portfolio with profitable undervalued companies to mitigate risks and maximize potential returns in the long term.
