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July 2023 proved to be a complicated period for the market. Stocks continue to rise, making it difficult to find names worth buying. This year has witnessed a huge rise in the prices of technology stocks. The launch of ChatGPT in November 2022 caused an increase in interest in such stocks, taking them to new heights.
Today, the NASDAQ 100 — the index of US technology stocks — is trading at a 32 price-to-earnings (P/E) ratio! This inflated index valuation is all the more remarkable when you consider that interest rates have risen significantly, and you can get around 5% return on wealth. The situation doesn’t look reasonable, but then again, there are good opportunities out there.
In this article, I will review three TSX stocks that I will buy in July 2023.
Brookfield
Brookfield (TSX:BN) is a Canadian asset management stock trading at 0.52 times sales and 1.24 times book value. It appears to be very cheap, and yet the stock is very far from the market this year.
Why are investors less pessimistic about Brookfield stock?
Part of this has to do with the fact that the company defaulted on some loans this year. Earlier this year, the company’s funds defaulted on $789 million in real estate loans. The company defaulted on another $160 million amount a few months later. That brings us to nearly a billion in total defaults.
However, Brookfield has $450 billion in assets and $146 billion in shareholders’ equity ($39.9 billion in common equity). BN’s defaulted loans amount to 0.2% of assets, 0.65% of equity, or 2.3% of common equity. Exposure to bad real estate / mortgages is minimal.
So, Brookfield will likely survive — and survive with its stock relatively cheap.
CN Railway
Canadian National Railway (TSX:CNR) will have a great year in 2023. Or rather, the company will have a great year; its stock is barely moving.
In its most recent quarter, CNR’s revenue grew 16%, and its earnings per share rose 38%. Growth is important. And yet, CN Railway stock is actually down 6.8% for the year. As a result, investors can now buy it at less than 20 times earnings for the first time in recent memory.
I would definitely buy this stock now if I didn’t have other ideas I like better.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is another modestly valued, but fast-growing Canadian stock. At today’s prices, it trades at 15.7 times earnings, 0.68 times sales, 3.8 times book value, and 10.9 times operating cash flow. Despite the cheap valuation, the company is growing. For example, in the last 12 months, it grew by 14.4% and its earnings by 21.5%.
This is pretty impressive, considering that a large part of the company’s business is the sale of fuel, and the gas/diesel price has dropped this year.
TD Bank
Toronto-Dominion Bank (TSX:TD) is the one stock on this list that I own. I first bought TD in 2018 and have held onto it ever since, buying dips when appropriate.
Over the past five years, TD Bank has grown its revenue and earnings by 7% annually. It has a 4.6% dividend yield. It trades at 9.5 times earnings. It has very high capital ratios – for example, a 15.5% common equity tier-one ratio – and is very liquid. Simply put, TD has everything you could want in a bank stock, but the stock price is down for the year. Overall, it looks like a decent buy.