3 Canadian Value Stocks With Strong Growth Potential

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Written by Vishesh Raisinghani at The Motley Fool Canada

Most stocks fall into one of two categories: growth or value. Value stocks are cheap, while growth stocks are usually expensive, as investors price in future earnings. However, in rare instances, a value stock is still growing underlying earnings at an impressive clip.

Here are the top three value stocks with strong growth potential that should be on your radar.

Magna International

Auto parts manufacturer Magna International (TSX:MGA) doesn’t seem like an impressive growth opportunity. The company reported just 5% revenue growth in its most recent quarter. Earnings per share, meanwhile, were actually lower than the same period last year.

However, investors need to consider the market cycle while judging this stock. The global auto industry has just been through a major supply chain disruption and now faces a recession. These are tough times to be in the auto business.

However, the future is relatively better. Magna should see immense gains from the transition to electric vehicles. In fact, the company expects margins to expand 230 basis points by 2025. Meanwhile, the stock is undervalued. Magna trades at just 1.4 times book value and offers a 3.6% dividend yield.

This is the perfect stock for a long-term investor.

Alimentation Couche Tard

Gas station and convenience store giant Alimentation Couche-Tard (TSX:ATD) often flies under the radar. This is a mundane but profitable business that has expanded through acquisitions. Disruptions during the pandemic made closing merger or acquisition deals more difficult. However, this year is clearly different. Alimentation has finally started deploying cash into expansion again.

The company recently announced a deal to acquire 112 gas station and convenience store sites in the United States. Before that, it purchased a whopping  2,000 service stations from a French oil firm that expands its footprint in Europe. With nearly $1.8 billion in cash on its balance sheet, the company has plenty of resources to keep expanding at this pace.

Meanwhile, the stock is up 10.5% year to date and 21% over the past year. The stock is far less volatile than its peers. It’s still trading at 17 times earnings per share, which makes it an ideal target for bargain hunters.

Loblaw Company

Galen Weston’s Loblaw Companies (TSX:L) is a serial compounder. The stock is up 10.4% over the past year, as the company proved its pricing power during an inflationary wave. Groceries stores across the company’s network raised prices, as the costs of food and essentials skyrocketed.

This level of pricing power puts a floor on the company’s earnings. But the firm is also investing in growth. Last year the company acquired Lifemark Health Group for $845- million — the largest deal in Canada’s private healthcare sector. This move was well timed as provincial leaders in Ontario and Alberta move to privatize healthcare with recently introduced bills aimed at clearing the backlog at Canadian hospitals and clinics.

Loblaw Companies could be a beneficiary of this trend, which may help the company expand margins and boost revenue in the years ahead. Meanwhile, the stock trades at just 21.5 times earnings per share. Investors looking for a long-term undervalued bet on steady growth should add this stock to their watch list.

The post 3 Canadian Value Stocks With Strong Growth Potential appeared first on The Motley Fool Canada.

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Fool contributor Vishesh Raisinghani has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.