The equity markets are wrestling with macroeconomic headwinds ranging from interest rate hikes and inflation to supply chain disruptions and geopolitical tensions. In the last month, the banking crisis south of the border has added fuel to the fire, making investors extremely nervous.
But it is almost the perfect opportunity for long-term investors to identify beaten-down stocks trading at a discount and benefit from stellar gains when market sentiment improves.
Here are two such undervalued TSX stocks I’d buy hand over fist in April 2023.
Pet Valu stock
One of Canada’s leading pet food and supplies retailers, Pet Valu (TSX:PET) is currently valued at a market cap of $2.6 billion. The company has more than 700 corporate-owned or franchised locations in the country and offers over 7,000 products to customers.
Pet Valu went public in June 2021, and despite a challenging business environment, shares touched record highs in February 2023 but are currently down 16% from all-time highs.
Pet Valu increased sales from $573.5 million in 2019 to $951.6 million in 2022. It forecasts sales to range between $10.5 billion and $1.075 billion this year, as the company intends to open at least 40 more stores in 2023.
Moreover, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is forecast between $230 million and $237 million, while adjusted earnings per share is estimated between $1.60 and $1.66 this year.
So, PET stock is priced at 2.5 times forward sales and 23 times forward earnings, which is very cheap. Pet Valu is a growth stock that is reporting consistent profits, as analysts expect the bottom line to expand by 23% annually in the next five years.
Its widening profits also allow Pet Valu to pay shareholders a dividend of $0.10 per quarter, translating to a forward yield of 1.1%. With a payout ratio of less than 25%, the company has enough room to increase dividends and reinvest in other growth initiatives.
Analysts tracking Pet Valu stock expect shares to surge by 28% in the next 12 months.
Another undervalued TSX gem is Shawcor (TSX:SCL), a material sciences company that serves the infrastructure, energy transportation, and water markets. It operates through a wide network of fixed and mobile manufacturing facilities that enable the enhancement of critical infrastructure.
Shwcor ended 2022 with $1.4 billion in sales, and analysts expect its top line to surge by 35.6% to $1.7 billion this year. Given its market cap of $850 million, Shawcor is valued at 0.5 times forward sales and seven times forward earnings, making it one of the cheapest stocks on the TSX.
Shawcor aims to focus on expanding its high-margin business lines to improve profit margins. It will also exit non-core businesses and facilities, providing it with additional liquidity to reinvest in other verticals.
Shawcor’s backlog in the fourth quarter of 2022 rose 22% year over year to $1.47 billion due to its offshore pipeline construction projects and strong industrial demand. Further, an improving bottom line has allowed the company to reduce its net-debt-to-adjusted EBITDA from 3.1 times in the fourth quarter of 2019 to 0.5 times in the fourth quarter of 2022.
SCL stock is priced at a discount of 25% to Bay Street consensus estimates.