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What are we looking for?

Value investing is about finding stocks that are underpriced relative to their true worth. Famous investors such as Warren Buffett and Benjamin Graham have made fortunes using this method of buying good businesses at a discount.

We are looking for fundamentally underpriced TSX stocks that provide the safety of a dividend, and offer potential for growth based on their smaller market cap.

The screen

Artificial Intelligence at Report on Business works with Stockcalc to provide professional-grade valuations for readers. Every stock in North America received a fresh evaluation after trading and a daily report can be found on its quote page on The Globe and Mail’s website.

Stock valuations are generated using a proprietary algorithm from up to six data calculations. The algorithmic approach used has been historically correct 78 per cent of the time for the S&P 500 list of companies looking out over the next 12 months (meaning the closing price exceeded the current valuation within 12 months in 78 per cent of the instances).

We asked StockCalc to scan all TSX mid-caps (less than $10-billion) for the biggest difference between what StockCalc considers their valuation and their trading price. StockCalc focuses only on what it can learn from a company’s financials. The only additional condition is that stock pay a dividend.

What we found

Top underpriced TSX mid-cap dividend stocks for value investors

FR-TFirst Majestic Silver9.2112.563.3536.42.4210.37-
PXT-TParex Resources23.7028.494.7920.22.6463.764.46
NWH-UN-TNorthwest Healthcare REIT9.7710.660.899.12.3428.198.43
SPB-TSuperior Plus11.0411.840.807.22.4836.520.00
CWB-TCanadian Western Bank27.8629.621.766.32.5494.458.22
INE-TInnergex Renewable Energy14.2715.150.886.22.885.05-
PRU-TPerseus Mining1.801.880.084.42.4821.218.62
RCH-TRichelieu Hardware40.3541.721.373.42.2691.3413.54

The list is sorted by stocks with the greatest percentage difference between valuation and price. Companies on this list are worthy of further research, including:

  • Winpak Ltd. (WPK-T) is a Winnipeg-based manufacturer of packaging materials and containers that appears undervalued by 42.7 per cent. It is interesting for its potential for capital appreciation plus its basic-materials-sector defensive position relative to a possible recessionary environment. It was recently identified in The Globe’s Top 10 undervalued consumer cyclical sector stocks on TSX report.
  • Parex Resources Inc. (PXT-T) is a Calgary-based oil and gas play that boasts the combination of a 4.79-per-cent yield with a 20-per-cent undervaluation. It was recently identified in The Globe’s Top 10 undervalued energy sector stocks on TSX report.
  • First Majestic Silver Corp. (FR-T) is a Vancouver-based silver and gold producer. Their shares have dropped 30 per cent this year in line with the spot price for silver. Its share price is now considered to be undervalued by 36 per cent.

More about Artificial Intelligence at Report on Business

Artificial Intelligence at Report on Business scans market data using algorithms to process large quantities of information. The results are specialized reports produced through automation.

Continuing ROB project experiments that leverage artificial intelligence include valuation screens across 14 categories and end-of-day Closing Summary reports for all North American securities.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth.

Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.

Click here for an explanation of StockCalc’s Quantitative Analysis and Multiple Linear Regression Modeling – the method for generation valuations.