3 Top Undervalued TSX Stocks to Buy Right Now for Superior Returns

Available at a deep discount, these three undervalued TSX stocks could deliver superior returns this year.

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Despite the rising COVID-19 infections worldwide, the Canadian equity markets remain strong, as the rollout of multiple vaccines has increased investors’ hopes of life and businesses returning to pre-pandemic ways soon. Currently, the S&P/TSX Composite Index is trading just 2.5% lower than its all-time high.

Meanwhile, some companies have failed to participate in the recovery rally and are available at deep discounts. So, investors can buy the following three undervalued Canadian stocks to earn superior returns this year.


The weak oil demand amid the pandemic-infused lockdown had lowered Enbridge’s (TSX:ENB)(NYSE:ENB) liquid pipeline throughput, which weighed heavily on its financials and stock price. It had lost over 21% of its stock value last year.

Meanwhile, with the rollout of multiple vaccines, the economic activities could improve this year, driving the oil demand higher. Further, the company has taken several cost-cutting initiatives, which could improve its profitability.

Enbridge’s management expects its 2021 DCF per share to be in the range of $4.70 to $5.00, representing a 4.3% growth from its mid-point guidance of 2020. Further, the company is going ahead with its $16 billion worth of secured growth projects, which could contribute $2 billion to its adjusted EBITDA from 2023. So, the company’s growth prospects look healthy.

Besides, Enbridge has raised its dividends for 26 consecutive years. It plans to pay quarterly dividends of $0.835 per share this year, with an annualized payout rate of $3.34 per share and an attractive dividend yield of 8.2%. Amid the decline in its stock price, Enbridge’s valuation looks attractive.

It trades at a forward price-to-earnings multiple of 15.4 and a price-to-book multiple of 1.3. So, given its healthy growth prospects, high dividend yield, and attractive valuation, I expect Enbridge to deliver superior returns this year.

Air Canada

The pandemic-infused travel restrictions had severely hit the passenger airline industry last year, with Air Canada (TSX:AC) losing over 53% of its stock value. Amid the low passenger volumes, the company has been bleeding cash while its debt levels are rising. The management also expects its cash burn in the fourth quarter to be in the range of $1.1 billion to $1.3 billion, which is higher than the $818 million that the company utilized in the third quarter.

However, Air Canada’s cargo revenue has been growing since its launch in March. Amid higher demand, the company has increased the number of cargo-only-flights, which has boosted its financials. Meanwhile, the widespread distribution of vaccines could prompt governments to ease travel restrictions, thus improving passenger volumes.

Also, Canadian households are sitting on a considerable amount of cash, which they had saved for emergencies. With the improvement in the economic activities and falling unemployment rate, they could spend the cash on discretionary items, which could benefit Air Canada.

The company has taken several cost-cutting initiatives, which is encouraging. So, despite the near-term challenges, I expect Air Canada to deliver superior returns this year.

Suncor Energy

Suncor Energy (TSX:SU)(NYSE:SU), which operates both upstream and downstream assets, has lost around 50% of its stock value last year, as weak oil prices weighed on the company’s financials. However, amid the vaccine euphoria, crude oil prices have risen.

Also, the U.S. Energy Information Administration has provided an optimistic short-term outlook for the energy sector. The federal agency expects Brent oil to average around $49 per barrel in 2021, representing a 14% increase from the expected average of $43 per barrel in the fourth quarter of 2020.

Meanwhile, Suncor Energy’s management expects its production to increase by 10% this year, while its operating expenses could fall by around 8%. The company also expects to repurchase $500 million worth of shares this year. So, along with the improved operating metrics, higher oil prices and share repurchases could boost Suncor Energy’s stock price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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