Undervalued stocks are back in investors' good books at the moment, with some chatter about high growth. Looking through Canadian stocks that are deeply discounted today, there are a few quality high-growth picks out there for investors seeking upside.
Below are three popular choices from the TSX index that meet both criteria, with up to +50% discounts against future cash flow projections, and annual growth in earnings of 30% and over.
STEP Energy Services (TSX:STEP)
Discounted by over 50% compared to its future cash flow value, STEP Energy Services is a favourite of stock analysts that satisfies both value and high-growth requirements. Further indication of decent valuation are STEP Energy Services's P/E of 7.7 times earnings, PEG of 0.2 times growth, and P/B of 1.2 times book.
Since STEP Energy Services is looking at a 34.3% expected annual growth in earnings, that low PEG is a clear sign that this stock is indeed undervalued in terms of growth. Looking at past pricing trends, STEP Energy Services has seen two distinct peaks in its price this year, each followed by very distinct troughs. Currently in a dip at $8.54 and falling, growth investors have an opportunity to ride the next climb to +$12.
Parex Resources Inc. (TSX:PXT)
Discounted today by 31% compared to its future cash flow value, Parex Resources is similarly well backed up by multiples, with a P/E of 14.8 times earnings (close to market weight), PEG of 0.4 times growth, and P/B of 2.9 times book. While that P/B denotes overvaluation in terms of assets, a 37.3% expected annual growth in earnings contrasts with a low PEG, indicating great value for growth.
Momentum investors may want to take note of the general upward trend of this stock's share price over the past year. Having dipped recently, this stock represents a value opportunity that's just right for energy investors looking beyond its overvalued competitors.
Alacer Gold Corp. (TSX:ASR)
Discounted by 48% compared to its future cash flow value, Alacer Gold has grown in value since last month, with its discount deepening on the recent bearishness in gold investment. A P/E of 11.4 times earnings is a little high for the Canadian mining sector, but it' still good value compared to the TSX average. A PEG of 0.4 times growth and P/B of 0.8 times book rounds out this stock's decent valuation.
Growth investors should be pleased by a 30.6% expected annual growth in earnings, an improvement of 4.6% since the last time I visited this stock. An upward trending price over the past year also makes this one for momentum investors.
The bottom line
Growth investors looking for improving stocks that are also deeply discounted have a ready-diversified trio of choices in the above stocks. All three have good annual earnings-growth expectations, and all three are also trading well below their future cash flow values.
A note for risk-averse investors: all three stocks listed here also have low to zero debt: Alacer Gold holds 36.9%, STEP Energy Services holds just 3.2%, and Parex Resources has no debt at all. In short, there is something here for investors looking for well-valued growth stocks in energy, oil and gas services, and precious metals, and a decent miniature growth portfolio all told.
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