In this article, we discuss the 10 undervalued Canadian stocks to buy now.
Major indexes of the stock market in Canada, like the S&P/TSX Composite, have so far managed to outperform other global indices even though recession fears hammer economies around the world. So far this year, the S&P/TSX Composite is down just a little over 10%, largely thanks to the rally in oil prices that have sustained energy firms through the inflation worries. Compared to this, the S&P 500 is down over 17% this year. However, as energy prices start fading again, the resilience of the Canadian market is being put to the test.
So far in 2022, nine of the top ten firms with the largest gains in Canada are from the energy sector. Oil, mining, and financial stocks comprise over 60% of the Canadian market, a heavy bias that is somewhat reflected in the growth-heavy S&P 500 in the US that includes famous names like Amazon.com, Inc. (NASDAQ:AMZN), Sea Limited (NYSE:SE), and Shopify Inc. (NYSE:SHOP). The energy sector in Canada is already down nearly 13% from highs in June as global demand for crude cools down.
Materials and financials are also trading down, with the latter registering a drop of 20% from a record high in February. However, analysts still expect the S&P/TSX Composite to outperform the S&P 500 this year. Ohsung Kwon, an equity strategist at Bank of America, told news platform Bloomberg in late June that “energy has room to run”. The analyst was of the view that energy producers would generate free cash flow yields that were three times as much as that of the S&P 500 average in 2022, a valuation the market had not taken into account.
Similarly, Kurt Reiman, the chief investment strategist of investment firm BlackRock, has said that the Canadian market is an “attractive relative performer” given the higher commodity prices in the country and the nature of the return of cash to shareholders. Reiman backed the S&P/TSX Composite to outperform the S&P 500 for the first time since 2016 on an annual basis. Reiman cited the low valuations of the energy and materials sectors even though their earnings were set for strong growth as one of the reasons behind the prediction.
However, the Canadian market has been shaken in the past few weeks after the central bank in the country announced that it was raising the benchmark interest rate by a full percentage point. The increase brought the rate to 2.5%, the biggest one-time increase in the rate since 1998. Major lenders in the country have sprung into action as a result, with the Royal Bank and TD raising their prime lending rates from 3.7% to 4.7%. The central bank has cited sustained inflation worries as one of the prime reasons behind the rate hike.
Our Methodology
The companies that are based in Canada and have a PE Ratio of less than 15 were selected for the list. The business fundamentals of these firms and the latest updates related to them are also discussed to provide some additional context. Four firms with PE Ratios of more than 15 are also on the list because of their earnings potential. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Undervalued Canadian Stocks to Buy Now
10. Algonquin Power & Utilities Corp. (NYSE:AQN)
PE Ratio: 26.45
Algonquin Power & Utilities Corp. (NYSE:AQN) owns and operates utility assets in the United States, Canada, Bermuda, and Chile. The firm sells electricity through renewable and clean energy power generation. These facilities are powered by hydroelectric, wind, solar, and thermal energy generation setups. The firm serves over 300,000 electric consumers, more than 370,000 natural gas consumers, and around 400,000 regulated water distribution and wastewater collection utility systems.
On May 13, Algonquin Power & Utilities Corp. (NYSE:AQN) posted earnings for the first quarter of 2022, reporting earnings per share of $0.21, in line with market estimates. The revenue over the period was $735 million, up close to 16% year-on-year.
On May 4, National Bank analyst Rupert Merer downgraded Algonquin Power & Utilities Corp. (NYSE:AQN) stock to Sector Perform from Outperform with a price target of $16, noting that the increasing bond yield was a drag on utility valuations.
Algonquin Power & Utilities Corp. (NYSE:AQN) has an impressive dividend history stretching back over a decade. Over the last twelve years, the payouts have grown consistently. On May 13, the firm raised the quarterly dividend by 6% to $0.1808 per share.
Just like Amazon.com, Inc. (NASDAQ:AMZN), Sea Limited (NYSE:SE), and Shopify Inc. (NYSE:SHOP), Algonquin Power & Utilities Corp. (NYSE:AQN) is one of the stocks that elite investors have their eye on.
9. TELUS Corporation (NYSE:TU)
PE Ratio: 23.39
TELUS Corporation (NYSE:TU) is an integrated telecommunications firm. Some of the services it provides include mobile technologies, equipment sale, internet protocols, and cloud-based services like software, data management, and data analytics-driven smart food-chain technologies. It serves close to 17 million people, including over 9 million mobile phone subscribers, over 2 million internet subscribers, more than 1 million TV subscribers, and around 800,000 security subscribers.
On July 19, TELUS Corporation (NYSE:TU) announced that a new site for the firm opening in Ireland would support a plan for the creation of better artificial intelligence solutions. The company plans to invest more than $1 million on the site.
On June 28, Scotiabank analyst Maher Yag assumed coverage of TELUS Corporation (NYSE:TU) stock with an Outperform rating and a price target of C$33.50, backing the firm to post low single-digit growth in Canada in 2022 and 2023.
Earlier in July, TELUS Corporation (NYSE:TU) had begun deploying a new mid-band 5G solution for internet speed improvements in Canadian urban hubs like Toronto, Montreal, Ottawa, Edmonton and Victoria.
8. Shaw Communications Inc. (NYSE:SJR)
PE Ratio: 20.66
Shaw Communications Inc. (NYSE:SJR) operates as a connectivity company offering cable, satellite, and wireless services. These include video, internet, WiFi, phone, satellite video, and data networking. On June 24, the company announced that it would be seeking mediation with authorities in Canada for a planned merger with Roger worth C$26 billion. The merger has come with concerns around the wireless business of Shaw. Canadian authorities have asked for more time to investigate before agreeing to the deal.
Shaw Communications Inc. (NYSE:SJR) has proposed selling the wireless business of the firm to Quebecor to resolve some of the antitrust concerns. The sale of the wireless business is worth C$2.85 billion.
On June 28, Scotiabank analyst Maher Yaghi assumed coverage of Shaw Communications Inc. (NYSE:SJR) stock with a Sector Perform rating and a price target of C$38, noting that firms with higher wireless exposure should fare better in the coming months in the telecom sector.
On June 30, Shaw Communications Inc. (NYSE:SJR) posted earnings for the third fiscal quarter, reporting earnings per share of $0.41, beating market estimates by $0.11. The revenue over the period was $1.35 billion, beating estimates by $290 million.
7. BCE Inc. (NYSE:BCE)
PE Ratio: 19.54
BCE Inc. (NYSE:BCE) operates as a telecommunications and media firm. Some of these include wireless voice and data communication products, consumer electronics products, as well as internet access, internet protocol television, and local telephone. It also offers digital media services, radio broadcasting services, and out-of-home advertising services. The firm is one of the oldest Canadian telecom players, being founded in 1880. It is headquartered in Verdun and employs close to 50,000 people.
BCE Inc. (NYSE:BCE) has recently started excluding Chinese firms Huawei and ZTE Corp from their 5G network build outs following a decision by Canadian authorities to ban the Chinese firms from 5G operations in the country citing national security threats.
BCE Inc. (NYSE:BCE) has an impressive dividend history stretching back more than three decades. The payouts have registered consistent growth in the past three years. On May 5, the firm declared a quarterly dividend of C$0.92 per share.
6. First National Financial Corporation (TSX:FN.TO)
PE Ratio: 11.55
First National Financial Corporation (TSX:FN.TO) is a Toronto-based firm that engages in the residential and commercial mortgage business. It offers single-family residential, and multi-unit residential and commercial mortgages. The firm operates through a mortgage broker distribution channel. It was founded in 1988 and is based in Toronto. It employs close to 1,600 people. The company posted an annual revenue of over $565 million in 2021, up around $80 million from $486 million in 2020.
In late April, First National Financial Corporation (TSX:FN.TO) declared earnings for the first quarter of 2022, reporting earnings per share of C$0.88 and a revenue of C$350 million, up more than 4% compared to the revenue over the same period last year.
First National Financial Corporation (TSX:FN.TO) has a solid dividend profile as well. It has consistently paid a dividend to shareholders for the past fifteen years. In mid-July, the firm declared a quarterly dividend of C$0.1958 per share, in line with previous.
Alongside Amazon.com, Inc. (NASDAQ:AMZN), Sea Limited (NYSE:SE), and Shopify Inc. (NYSE:SHOP), First National Financial Corporation (TSX:FN.TO) is one of the stocks that hedge funds are monitoring.
5. TFI International Inc. (NYSE:TFII)
PE Ratio: 11.52
TFI International Inc. (NYSE:TFII) provides transportation and logistics services. Some of these include pickup, consolidation, delivery, as well as tank container services. The company boasts a fleet of over 13,000 tractors, more than 50,000 trailers, and around 9,000 independent contractors for the purpose. The firm was formerly known as TransForce but changed the name to TFI International in 2016. It is headquartered in the Saint-Laurent city of Quebec. It employs close to 30,000 people across the globe.
TFI International Inc. (NYSE:TFII) is steadily building a dividend profile. Over the past two years, the company has paid a consistently growing dividend to shareholders. On June 15, it declared a quarterly dividend of $0.27 per share, in line with previous.
In late April, TFI International Inc. (NYSE:TFII) posted earnings for the first quarter of 2022, reporting earnings per share of $1.68, beating market estimates by $0.38. The revenue over the period was $2.1 billion, up over 90% year-on-year.
4. The Bank of Nova Scotia (NYSE:BNS)
PE Ratio: 9.09
The Bank of Nova Scotia (NYSE:BNS) is a Canadian banking firm. Some of the services it provides include debit and credit cards, chequing and saving accounts, investments, mortgages, loans, and insurance, as well as cash management and trade finance solutions. The firm operates in a range of countries like the United States, Mexico, Peru, Chile, and Colombia. It was founded in 1832 and employs over 90,000 people across the world. It is headquartered in the Halifax region of Nova Scotia.
The Bank of Nova Scotia (NYSE:BNS) stock has climbed in the past week as the Canadian government tries to rein in inflation through aggressive rate hikes. On July 13, the central bank in Canada raised the policy rate by 100 basis points.
On May 25, The Bank of Nova Scotia (NYSE:BNS) posted earnings for the second fiscal quarter, reporting earnings per share of C$2.18, beating estimates by C$0.22. The revenue over the period was C$7.9 billion, up over 2% year-on-year.
3. Canadian Imperial Bank of Commerce (TSX:CM.TO)
PE Ratio: 8.92
Canadian Imperial Bank of Commerce (TSX:CM.TO) is a diversified financial services firm based in Toronto. In April, the bank had announced plans for a 2-for-1 stock split. At the time, the bank had more than 450 million outstanding shares which were converted into over 900 million shares. The stock climbed marginally after the announcement but has since lagged due to the overall slowdown in the Canadian economy due to inflation. In the past twelve months, the shares are down more than 12%.
Canadian Imperial Bank of Commerce (TSX:CM.TO) has an impressive dividend history stretching back over three decades. In the past six years, these payouts have grown. On May 28, the firm raised the quarterly dividend by 3% to C$0.83 per share.
In late May, Canadian Imperial Bank of Commerce (TSX:CM.TO) posted earnings for the second fiscal quarter, beating market estimates on earnings per share and revenue by C$0.05 and C$180 million respectively.
2. Canadian Natural Resources Limited (NYSE:CNQ)
PE Ratio: 8.12
Canadian Natural Resources Limited (NYSE:CNQ) operates as an integrated oil and gas firm. The firm produces and sells crude oil, natural gas, and natural gas liquids. It is headquartered in Calgary and was founded in 1973. It employs over 9,000 people. It has over 10,528 million barrels of proven crude oil, bitumen, and natural gas liquids reserves, as well as total proved plus probable crude oil, bitumen, and natural gas liquid reserves of 13,271 MMbbl. It was formerly known as the AEX Minerals Corporation.
Canadian Natural Resources Limited (NYSE:CNQ) has a rich dividend history stretching back two decades. In the past six years, the payouts have registered consistent growth. On May 5, the firm declared a quarterly dividend of C$0.75 per share, in line with previous.
In earnings results for the first quarter of 2022, posted in early May, Canadian Natural Resources Limited (NYSE:CNQ) reported adjusted funds flow of C$5 billion, an increase of C$2.3 billion compared to the same period last year.
1. TC Energy Corporation (NYSE:TRP)
PE Ratio: 4.44
TC Energy Corporation (NYSE:TRP) is an energy infrastructure company. The firm primarily builds and runs a network of natural gas pipelines which extend to over 93,000 km. This network transports natural gas to power generation plants, industrial facilities, and LNG export terminals. The company also has natural gas storage facilities with a total working gas capacity of 535 billion cubic feet. It runs a 4,900 km liquids pipeline system that connects Alberta crude oil supplies to refining markets in the United States.
In early July, news agency Reuters reported that TC Energy Corporation (NYSE:TRP) had reached an agreement with authorities in Mexico to build a $5 billion gas pipeline in the Veracruz state on the Gulf of Mexico coast.
The pipeline, which will connect the ports of Tuxpan and Coatzacoalcos, will be built by TC Energy Corporation (NYSE:TRP) and CFE, a state-owned power firm in Mexico. TC Energy is headquartered in Calgary.
You can also take a peek at 12 Best Environmental Stocks to Invest In and 10 Best Nickel Stocks to Buy Now.
Follow Insider Monkey on Twitter
Suggested Articles:
- 10 Best Automotive Stocks to Invest in Now
- 10 Best Self Driving Car Stocks to Invest In
- 10 Best Renewable Energy Stocks to Buy According to Hedge Funds
Disclosure. None. 10 Undervalued Canadian Stocks to Buy Now is originally published on Insider Monkey.
