Market indexes rose on Monday after Canada agreed to join the trade deal between the U.S. and Mexico. As a result, good investment opportunities may be found among Canadian companies trading below their Peter Lynch values.
With the belief that good, stable companies eventually trade at 15 times their annual earnings, Lynch, a renowned value investor, developed this method in order to simplify his research process. If a stock is trading below a price-earnings ratio of 15, it is often considered a good investment since its share price is likely to appreciate over time, thereby creating value for shareholders.
According to the GuruFocus All-in-One Screener, Canadian stocks trading below this level that have good predictability and revenue growth are Metro Inc. (TSX:MRU, Financial), High Liner Foods Inc. (TSX:HLF, Financial) and TFI International Inc. (TSX:TFII, Financial).
Metro
The grocery store chain, which is headquartered in Montreal, has a market cap of 10.26 billion Canadian dollars ($8.01 billion); its shares closed at CA$40.18 on Friday with a price-earnings ratio of 5.36, a price-book ratio of 1.87 and a price-sales ratio of 0.68.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Metro’s financial strength 6 out of 10. While the company has issued approximately CA$1.8 billion in new long-term debt over the last three years, it is at a manageable level as a result of good interest coverage. In addition, the Altman Z-Score of 3.54 indicates the company is in good financial standing.
Supported by an expanding operating margin, the company’s profitability and growth scored an 8 out of 10 rating. It also has a moderate Piotroski F-Score of 5, meaning business conditions are stable, and a business predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 10.6% per year and have consistent earnings and revenue growth.
No gurus are currently invested in the stock.
High Liner Foods
The Lunenburg, Nova Scotia-based seafood company has a CA$268.74 million market cap; its shares closed at CA$8.05 on Friday with a price-earnings ratio of 6.29, a price-book ratio of 0.75 and a price-sales ratio of 0.19.
According to the Peter Lynch chart, the stock is undervalued.
As a result of issuing approximately $32.01 million in new long-term debt over the last three years, High Liner’s financial strength was rated 5 out of 10 by GuruFocus. The company also has poor interest coverage and its Altman Z-Score of 2.27 indicates it is under some fiscal pressure.
The company’s profitability and growth fared a bit better, scoring a 6 out of 10 rating. Although High Liner’s margins are in decline, the Piotroski F-Score of 4 suggests operating conditions are normal. Despite having good earnings and revenue growth, however, GuruFocus says the company’s 2.5-star business predictability rank is on watch. Companies with this rank typically see stock price appreciation of 7.3% per year on average.
There are currently no gurus invested in the stock.
TFI International
Based in Montreal, the trucking and logistics company has a market cap of CA$4.13 billion; its shares closed at CA$46.88 on Friday with a price-earnings ratio of 12.40, a price-book ratio of 2.79 and a price-sales ratio of 0.88.
Based on the Peter Lynch chart, the stock appears to be undervalued since it is trading below its fair value.
Weighed down by poor interest coverage, TFI’s financial strength was rated 5 out of 10 by GuruFocus. In addition, the Altman Z-Score of 2.91 suggests the company is under some fiscal pressure.
Despite having a declining operating margin, the company’s profitability and growth scored an 8 out of 10 rating as a result of a high Piotroski F-Score of 7 and good revenue and earnings per share growth. The company also has a two-star business predictability rank, which GuruFocus says see an average gain of 6% per year.
The company has no guru investors.
Disclosure: No positions.
