3 Value Stocks for Superior Returns in 2023

The recent reassurance from Janet Yellen, United States Secretary of the Treasury, to safeguard against further banking crises appears to have raised investors’ confidence, driving the equity markets higher. The S&P/TSX Composite Index has increased 1.4% in the last two days. Amid improving investors’ sentiments, you can buy three value stocks to earn superior returns this year.

Algonquin Power & Utilities

Last week, Algonquin Power & Utilities (TSX:AQN) reported an impressive fourth-quarter performance, with its revenue and adjusted net earnings growing by 26% and 10%, respectively. Meanwhile, its adjusted earnings per share (EPS) for 2022 came in at US$0.69 at the higher end of the company’s guidance of US$0.66-US$0.69. Amid its solid performance, the company’s stock price has increased by 2.7% since its quarterly results. Despite the rise, it still trades at a substantial discount compared to its 52-week highs. Its valuation also looks attractive, with its NTM (next 12-month) price-to-sales and NTM price-to-earnings ratios standing at 1.9 and 13.4, respectively.

Amid the rising interest rates, AQN’s management has planned to lower its capital intensity and strengthen its balance sheet by selling assets worth around US$1 billion. The management expects to invest around US$3.6 billion this year, with US$3.3 billion in regulated utility growth and US$300 million in the renewable energy group. Currently, the company is constructing various wind and solar projects that are in different development stages. Further, AQN’s management has slashed its quarterly dividend by 40% amid the challenging environment. Despite the reductions, its yield for the next 12 months is a healthy 5.5%.

TC Energy

TC Energy (TSX:TRP) is an energy infrastructure company that operates a pipeline network transporting natural gas and crude oil across North America. Over the last few months, the company has been under pressure due to a substantial spillage at its Keystone Pipeline project and falling oil prices. The company has lost close to 30% of its stock value compared to its 52-week high. The steep correction has dragged its NTM price-to-earnings multiple down to an attractive 12.

After placing $5.8 billion worth of projects into service last year, TC Energy expects to put around $6 billion of projects into service this year. These new projects could boost the company’s financials this year. Meanwhile, the company’s management expects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS to witness growth, despite lower contributions from the Keystone Pipeline project and higher interest expenses. Notably, the company has enhanced shareholders’ value by consistently increasing its dividend for the last 23 years. Amid the recent pullback, its dividend yield has risen to 7.11%.

Telus

My final pick is Telus (TSX:T), which has lost around 21.5% compared to its 52-week high. Given its capital-intensive business, investors are worried that rising interest rates would increase Telus’s interest expenses, thus impacting its margins. These concerns have dragged the company’s stock price down. Amid the pullback, the company trades at an attractive NTM price-to-sales multiple of 1.9.

Despite the near-term volatility, I am bullish on Telus, as the demand for telecommunication services is rising due to digitization. The company added over one million customers in 2022 thanks to its aggressive capital investments. Meanwhile, its revenue and adjusted EBITDA grew by 8.6% and 9.5%, respectively.

Further, Telus has strengthened its position in telehealthcare sectors by acquiring LifeWorks in September. The company has also raised its dividends uninterrupted for the last 19 years, while its forward yield stands at a juicy 5.17%.

Investors’ takeaway

Given their solid underlying businesses, stable cash flows, and attractive valuation, these three undervalued TSX stocks could deliver superior returns this year.

The post 3 Value Stocks for Superior Returns in 2023 appeared first on The Motley Fool Canada.

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Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.