Investing in stocks that are trading at a significant discount to their intrinsic value has the potential to generate substantial gains for investors over the long term. It is essential to identify a diversified portfolio of undervalued stocks that can be acquired at a favorable price point to benefit from strong returns when market sentiment improves. Here are three undervalued Canadian stocks that present compelling investment opportunities:
1. High Tide is a retail-focused cannabis company valued at $240 million. The company operates a network of brick-and-mortar stores and an e-commerce platform, with a significant presence in North America. Despite challenging market conditions, High Tide achieved a 9% increase in sales year-over-year in fiscal Q1 of 2024. The company’s innovative discount club model, including the ELITE membership program and Cabana Club, has contributed to its strong performance and is expected to drive recurring revenue growth. Analysts anticipate High Tide to report adjusted earnings of $0.17 per share in fiscal 2025, positioning the stock at an attractive valuation of 18 times forward earnings.
2. Spartan Delta, with a market cap of $720 million, possesses a portfolio of production and development opportunities in the Deep Basin and Duvernay. The company focuses on organic drilling projects and strategic acquisitions to enhance future cash flow generation. In Q1 2024, Spartan Delta reported oil and gas sales of $84.1 million and adjusted funds flow of $45.7 million, or $0.26 per share. With a low valuation of 1.4 times forward earnings, Spartan Delta presents as one of the most affordable Canadian stocks available for investment.
3. Secure Energy Services, valued at $3 billion, is a water management and energy infrastructure company expected to achieve an adjusted EBITDA between $450 million and $465 million by the end of 2024. The stock trades at an Enterprise Value/ EBITDA multiple of less than seven times, indicating a compelling valuation proposition. Additionally, Secure Energy pays a quarterly dividend of $0.10 per share, equating to a forward yield of 3.5%. In Q1, the company reported free cash flow of $93 million, underscoring a sustainable payout ratio of less than 40%.
These undervalued stocks are well-positioned to deliver attractive returns for investors seeking opportunities in the Canadian market.
