We recently published a list of 10 Undervalued Canadian Stocks to Buy Now. In this article, we are going to take a look at where Royal Bank of Canada (NYSE:RY) stands against other undervalued Canadian stocks to buy now.

Q1 2025 saw some challenges to the financial markets, primarily because of trade issues, says Sun Life (a Canadian-based international financial services company). The US decided to impose extra taxes, known as tariffs, on goods coming from numerous countries, including Canada. This move impacted the investors’ sentiments as to how it might slow down business and economic growth, not only in Canada but globally. The firm noted that Canada’s economy remains strong, and the BoC is no longer concerned with inflation. It lowered the interest rate by 50 bps to 2.75% as an effort to manage the economic impact of US tariffs.

Current State of Canada’s Economy

Canada’s economy strengthened at the end of 2024, says Sun Life, thanks to the lower interest rates. That being said, the markets remain nervous about economic strength. As per the firm, Canada’s economy saw a growth of 2.6%, annualized over Q4 2024. Consumer spending acted as the critical growth driver. Also, reduced interest rates aided in driving consumer spending. The country’s economy also benefited from the stronger exports.

The firm also highlighted that Canada’s unemployment rate sat at 6.6% as of February. BoC decided to reduce rates in part because of the improving labour market. Notably, Canadian equities touched a new high early in the quarter. Talking about the sectors, the Materials and Utilities sectors were tagged as the strongest performers. However, the Health Care and IT sectors saw the weakest returns.

READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.

What’s Next for Canadian Equities?

Bloomberg, while quoting Scotiabank, mentioned that Canada’s stock markets are expected to outperform after avoiding the worst of Trump’s tariffs. Scotia Capital Inc. provided a double upgrade to Canadian equities, from “Underweight” to “Overweight,” with analysts highlighting that both Canada and Mexico have managed to dodge the bullet in the escalating trade war. As per Bloomberg Intelligence analysts Gillian Wolff and Gina Martin Adams, TSX valuations are low relative to pre-pandemic levels, which offer a buffer against economic volatility and trade war.

The analysts at Scotia Capital Inc. believe that the escalating trade war announcement is negative for the US and the rest of the world. Scotiabank has dropped emerging market equities to “Underweight” from “Neutral,” mentioned Bloomberg.

Our Methodology

To list the 10 Undervalued Canadian Stocks to Buy Now, we used a screener to shortlist Canadian companies that trade at a forward P/E of less than ~20.0x. Next, we mentioned hedge fund sentiment around each stock, as of Q4 2024, and ranked them in ascending order of this metric.

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).

Royal Bank of Canada (NYSE:RY)

Forward P/E as of April 4: ~11.5x

Number of Hedge Fund Holders: 31

Royal Bank of Canada (NYSE:RY) operates as a diversified financial services company. The company is headquartered in Toronto, Canada. CIBC Capital Markets analyst Paul Holden upped the company’s stock to “Outperformer” from “Neutral.” The analyst believes that this bank typically performs well in down markets. Furthermore, he noted that Royal Bank of Canada (NYSE:RY)’s revenue mix makes it less vulnerable to slower loan growth, bad credit, and tightening margins. Notably, the earnings and balance sheet diversification are tagged as positive attributes when economic conditions get worse.

Elsewhere, Canaccord Genuity analyst Matthew Lee gave a “Buy” rating on the company’s stock, backed by factors demonstrating its healthy financial position and growth potential. Royal Bank of Canada (NYSE:RY)’s premium valuation exhibits its consistent earnings growth and strong RoE, which are being aided by a strategic emphasis on cost management and efficiency improvements. Notably, in Q1 2025, the bank saw an adjusted ROE of 17.2%, reflecting a rise of 230 bps YoY. Lee expects that Royal Bank of Canada (NYSE:RY)’s focus on personal and commercial banking, by using distribution network and technological innovations, can fuel client acquisition and loan growth. Overall, despite the challenges, its comprehensive growth strategy and efficiency gains place it well for future growth, justifying the analyst’s rating.

Overall, RY ranks 6th on our list of undervalued Canadian stocks to buy now. While we acknowledge the potential of RY as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher 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 a deeply undervalued AI stock that is more promising than RY 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.