We recently published a list of the 10 Most Undervalued Canadian Stocks to Buy According to Wall Street Analysts. In this article, we are going to take a look at where North American Construction Group Ltd. (NYSE:NOA) stands against other undervalued Canadian stocks according to Wall Street analysts.

As February was concluding, Reuters reported that Canada’s economy showed unexpected strength in Q4 2024, with an annualized growth rate of 2.6%. Household spending in particular, which makes up over half of the total GDP, rose by 1.4% in Q4. Business investments, which were stagnant for the past 11 quarters, finally showed positive momentum with a 0.7% growth in Q4. This was fueled by a 4.2% surge in investment in machinery and equipment. On a per capita basis, real GDP rose by 0.2% in Q4, which represents the second increase in the last 11 quarters. However, recently, amidst concerns over a US-led trade war, a Reuters poll from April indicates rising recession risks for Canada, which will potentially trigger at least two more Bank of Canada rate cuts this year, despite a temporary 90-day pause on some reciprocal tariffs announced by the US. Economists have now lowered Canada’s growth forecasts to 1.2% for this year and 1.1% for the next, down from 1.7% and 1.6% respectively. All the economists surveyed agree that the US tariffs have negatively affected business sentiment. Inflation is projected to average 2.4% in 2025 and 2.1% in 2026.

On April 7, Steve Odland, The Conference Board president and CEO, joined CNBC’s Special Report to talk about the impact of tariff-led uncertainty on CEO sentiments. Steve Odland emphasized that CEOs need clarity on numbers, costs, and the rules of the game to plan effectively. While CEOs felt somewhat positive about the general direction of the economy, the introduction of tariffs had thrown everything into confusion. Odland described the situation as chaotic because many had expected tariffs to target countries like China, not close allies such as Canada and Mexico. This move was a shock to the system and raised questions about whether the tariffs were a temporary negotiating tactic or a long-term policy change, which further complicates business planning.

In a conversation regarding the expectation of certain countries to come to the negotiating table, Odland responded that some countries, including Canada and Mexico, would likely be prioritized for quick resolution due to their importance. This is because of the integrated nature of the North American supply chain, especially in industries like automotive manufacturing. The conversation suggested that if firm deals could be reached with Canada, Mexico, China, Vietnam, and Taiwan, ideally resulting in zero tariffs, business confidence would improve.

Our Methodology

We first used the Finviz stock screener to compile a list of cheap Canadian stocks that had a forward P/E ratio under 15. We then selected the 10 stocks with high upside potential of over 35%. The stocks are ranked in ascending order of their upside potential. We have also added the hedge fund sentiment for each stock, as of Q4 2024, which was sourced from Insider Monkey’s database.

Note: All data was sourced on April 21.

Why are we interested in 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

North American Construction Group Ltd. (NYSE:NOA)

Forward P/E Ratio as of April 21: 5.85

Number of Hedge Fund Holders: 11

Average Upside Potential as of April 21: 69.72%

North American Construction Group Ltd. (NYSE:NOA) provides mining and heavy civil construction services to customers in the resource development and industrial construction sectors. It offers mine management services for a thermal coal mine, and construction & operations support services in the Canadian oil sands region.

In Q4 2024, the company’s Australian Operations segment, which includes the contributions from the MacKellar Group and DGI, experienced sequential growth and increased by $31 million. Notably, MacKellar achieved its highest revenue quarter ever in Q4, and the Australian equipment fleet maintained a strong average utilization rate of 82%, which consistently exceeded 80% every month of the quarter.

The acquisition of MacKellar in October 2023 has proven to be a key catalyst for North American Construction’s diversification strategy. In its first year under North American Construction’s ownership, the Australian business exceeded expectations in several areas. The Australian Operations are projected to generate 60% of the company’s earnings before interest and tax (EBIT) in 2025.

Bonhoeffer Capital Management highlighted the company as a compelling investment due to its growth strategy and stated the following regarding North American Construction Group Ltd. (NYSE:NOA) in its Q3 2024 investor letter:

“Our broadcast TV franchises, leasing, building products distributors and dealerships and service outsourcing, fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions, which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock, and the process is repeated. This strategy’s effectiveness is dependent upon a spread between borrowing, interest rates and the cash returns from the core business and acquisitions. Over the past few months, long-term interest rates have been declining and short-term rates are expected to follow so a large and growing spread is available to firms, like North American Construction Group Ltd. (NYSE:NOA) who have a high return on capital. One way to measure future expected returns are post-synergy cash flow ratios paid for acquisitions. Another way to measure future growth in expected returns is through incremental return on incremental invested capital (RoIIC).

Many of our holdings used the acquisition/buyback model described above. Some of these firms have also used modest leverage to magnify the returns of equity to 20% and above, over the past five to ten years from the acquisition/buyback model. These firms include: Terravest, Asbury Automobile, Ashtead, Autohellas, Builders First Source and NOA. In addition, many of these firms are buying back stock and the modest current valuations make these buybacks accretive…” (Click here to read the full text)

Overall, NOA ranks 2nd on our list of the most undervalued Canadian stocks to buy according to Wall Street analysts. While we acknowledge the growth potential of NOA, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than NOA but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.