Canadian Feature Screens

5 Undervalued Canadian Stocks for Intelligent Investors – February 2017

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the most undervalued Canadian companies reviewed by ModernGraham. Each company has been determined to be suitable for the Defensive Investor and/or the Enterprising Investor according to the ModernGraham approach.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

Celestica Inc (TSE:CLS)

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.29 in 2012 to an estimated $0.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Celestica Inc revealed the company was trading below its Graham Number of $20.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.51, which was below the industry average of 28.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.81.  (See the full valuation)

Intertape Polymer Group (TSE:ITP)

Intertape Polymer Group is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.18 in 2012 to an estimated $1.17 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Intertape Polymer Group revealed the company was trading above its Graham Number of $13.53. The company pays a dividend of $0.7 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.32, which was below the industry average of 28.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.93.  (See the full valuation)

Canfor Corporation (TSE:CFP)

Canfor Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.16 in 2012 to an estimated $0.81 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.09% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Canfor Corporation revealed the company was trading above its Graham Number of $14.31. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.68, which was below the industry average of 24.45, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.5.  (See the full valuation)

Stella-Jones Inc (TSE:SJ)

Stella-Jones Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.84 in 2012 to an estimated $1.9 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.88% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Stella-Jones Inc revealed the company was trading above its Graham Number of $27.89. The company pays a dividend of $0.38 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 22.26, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.03.  (See the full valuation)

Canadian Imperial Bank of Commerce (TSE:CM)

Canadian Imperial Bank of Commerce is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $7.07 in 2013 to an estimated $9.62 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Canadian Imperial Bank of Commerce revealed the company was trading below its Graham Number of $114.08. The company pays a dividend of $4.75 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.5, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

What do you think?  Are these companies a good value for Defensive Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.  This article first appeared on ModernGraham.

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