We recently compiled a list of the 7 Most Undervalued Canadian Stocks To Buy According To Analysts. In this article, we are going to take a look at where TRX Gold Corporation (NYSE:TRX) stands against the other undervalued Canadian stocks.
The Canadian stock market experienced a notable rebound in the third quarter of 2024, following a sluggish performance earlier in the year. This resurgence was primarily fueled by a series of interest rate cuts by the Bank of Canada, which helped cool inflation and support broader economic recovery. The central bank’s actions, which included rate reductions totaling 75 basis points so far, have rejuvenated the real estate market and provided a significant lift to financial services stocks. According to a report by Reuters, the Toronto market gained 9.7% in Q3 2024, making it the strongest quarterly performance since 2019. The impact of these measures has created an optimistic outlook for the market, potentially setting the stage for continued growth in the coming months.
The third quarter proved to be the strongest for Canada’s main stock market, thanks to a combination of domestic rate cuts and rebounding global markets. Economies around the world showed signs of recovery, improving investor sentiment and benefiting Canadian equities. Financial and technology stocks were among the biggest contributors to the market’s positive performance, with financial stocks gaining 10% and tech stocks up by 12% during the quarter, according to data from Reuters.
This strong performance was driven by key players in the industry, highlighting the potential of Canadian financial and tech stocks. The financial sector also saw significant gains, supported by the large weight of financials in the Canadian index, which amplified the impact of rate relief on credit performance. The recovery was further bolstered by strong earnings reports and a pivot towards rate cuts by the U.S. Federal Reserve, which lent additional support to the Canadian market.
The impressive performance of Canadian stocks can be attributed to a combination of domestic and global factors. Analysts noted that the Bank of Canada’s rate cuts had a revitalizing effect on the real estate market, which in turn bolstered financial services stocks. Jimmy Jean, a prominent economist, pointed out that the expectation of additional rate cuts created a favorable environment for the real estate sector, allowing it to lead the market recovery.
Furthermore, the Canadian stock market benefited from a broader global recovery, as investor sentiment improved in tandem with solid earnings reports from international markets. In this context, Canada emerged as one of the best-performing markets worldwide in the third quarter, following a period of underperformance in the second quarter.
As the outlook for the remainder of the year unfolds, analysts anticipate that if the Bank of Canada continues its rate-cutting strategy, the positive momentum could persist. Lower mortgage rates are expected to alleviate borrowing costs for households, stimulating demand for housing and further strengthening the real estate and financial sectors. However, challenges remain, particularly in light of geopolitical tensions that could impact oil prices and the energy sector. Despite these concerns, the overall sentiment surrounding Canadian equities remains cautiously optimistic, with a focus on identifying undervalued stocks poised for growth in this evolving market landscape.
With these factors in mind, this article delves into the seven most undervalued Canadian stocks that analysts recommend for investors seeking opportunities in this recovering market.
Our Methodology
For this article, we used the Finviz stock screener to identify all the companies operating out of Canada with a forward Price-to-Earnings (P/E) ratio of less than 15 as of October 7, 2024. We then reviewed the price targets set by analysts for each stock and compared them to their respective closing prices on October 7 to evaluate the upside potential. Additionally, we analyzed data from approximately 912 elite hedge funds tracked by Insider Monkey during the second quarter of 2024 to assess hedge fund ownership of each company. The stocks are ranked in ascending order based on their upside potential.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A man, dressed in protective gear, holding a golden nugget freshly extracted from an underground mining shaft.
TRX Gold Corporation (NYSE:TRX)
Upside Potential: 254%
Forward Price to Earnings (P/E) Ratio: 6.16
Number of Hedge Fund Holders: 2
TRX Gold Corporation (NYSE:TRX), based in Oakville, Canada, is engaged in the exploration, development, and production of gold properties in the United Republic of Tanzania. The company’s primary asset is the Buckreef Gold Project, which includes a Special Mining License covering 16.04 square kilometers and 12 Prospecting Licenses spanning 98.19 square kilometers in north-central Tanzania. Formerly known as Tanzanian Gold Corporation, the company rebranded to TRX Gold Corporation (NYSE:TRX) in May 2022 to align with its expanded operations and strategic focus.
In Q3 2024, TRX Gold Corporation (NYSE:TRX) delivered a strong financial performance, showcasing significant revenue growth and improved gold production. The company reported revenues of over $10 million for the quarter, contributing to a year-to-date figure of around $30 million. The gross profit margin for Q3 2024 stood at approximately 43%, demonstrating robust operational efficiency. Year-to-date gross margins also remained strong at over 40%, highlighting TRX Gold’s ability to manage costs effectively despite increased production activities.
A key highlight from the earnings call was TRX Gold Corporation (NYSE:TRX) ability to ramp up production to nearly 1,900 tonnes per day, a substantial 116% increase compared to the previous quarter. This surge in production capacity resulted from the successful commissioning of the company’s 2,000 tonnes-per-day processing plant, which was expanded on time and within budget. The expansion was funded entirely through internally generated cash flow, preventing any dilution of shareholder value.
The company’s liquidity position remains healthy, with just under $8 million in cash and a debt-free balance sheet. This solid financial footing enables TRX Gold to explore further operational expansions and pursue strategic investments to optimize gold recovery rates. TRX Gold Corporation (NYSE:TRX) also benefits from favorable realized gold prices, with year-to-date prices averaging $2,300 per ounce and recent sales fetching as high as $2,460 per ounce.
Despite the rising operating costs due to higher mining expenses, TRX Gold Corporation (NYSE:TRX) remains focused on optimizing throughput and recovery rates to enhance profitability. The company’s transition from oxides to sulfide ores presents some challenges, but ongoing evaluations and potential investments in advanced milling technology are expected to mitigate these issues. With strong financial performance, operational expansion, and a solid liquidity position, TRX Gold Corporation (NYSE:TRX) is well-positioned for future growth, making it one of the most undervalued Canadian stocks to consider for investment according to analysts.
Overall TRX ranks 2nd on our list of the most undervalued Canadian stocks to buy according to analysts. While we acknowledge the potential of TRX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TRX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
