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3 Cheap Canadian Stocks for Market-Beating Returns in 2021

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The value trade is heating up again at the expense of growth stocks. As U.S. bond yields continue their ascent toward 2%, I think some of Canada’s top value stocks could be in a position to correct to the upside in a big way.

Despite the bond sell-off and the quadrupling of their yields off the bottom, they remain unrewarding, with negative real returns with inflation taken into account. There are few places to “hide” these days, other than cash. That’s why cheap Canadian stocks and cash are the perfect mix to combat the recent volatility storm induced by the growthiest areas of the stock market.

With many potential bubbles still floating around this market (think Tesla and all things Bitcoin) that could threaten to drag the broader basket of growth stocks lower, I’d urge investors to err on the side of caution.

In this piece, we’ll have a look at three of my favourite Canadian stocks that still look too cheap to pass up here.

Canadian Tire

Canadian Tire (TSX:CTC.A) is an iconic brick-and-mortar retailer that had a remarkable 2020.

Who would have thought the retailer would be at fresh all-time highs just one year after the coronavirus crisis struck? I certainly didn’t. Canadian Tire defied the odds with incredible growth from its e-commerce platform. Despite the digital strength, Canadian Tire is a physical retailer at heart. As the pandemic ends, I think the Tire will really be able to flex its muscles, with strength on- and offline.

Canadian Tire is the ultimate omnichannel retail top dog. And I think its stock is just getting started. Despite the recent run, shares still seem too cheap at 14.7 times trailing earnings.

My takeaway? Buy the strength in the cheap Canadian stock.

TC Energy

TC Energy (TSX:TRP)(NYSE:TRP) is an incredibly diversified midstream player that’s been under considerable pressure thanks in part to President Biden’s distaste for the Keystone XL pipeline. States are filing suit against Biden to bring the project back from the dead. What happens next will be a mystery.

Regardless, investors should move on from the Keystone hit. The firm has many more projects in the pipeline (sorry for the pun!) to fuel meaningful dividend increases for years to come. As oil prices continue their ascent, energy stocks across the stream, I believe, will be propelled higher. And at this juncture, TRP stock is my top pipeline pick.

While the 6.1% yield may not be the richest, it looks to have the most room for growth. At 12 times trailing earnings,  income investors should strongly consider getting in before the yield can compress as a result of any appreciation.

Spin Master

Spin Master (TSX:TOY) is an underrated mid-cap Canadian toymaker that’s pretty misunderstood. The firm, which recently had a management shake-up, is more of a tech company that just happens to make toys. It’s an innovative firm with a pipeline of potential holiday sellers and a digital business that exploded during the pandemic.

With a roster of incredible brands like PAW Patrol, Hatchimals, and Gund, I wouldn’t discount the firm’s abilities to leverage such brands in the realm of the digital. The Toca Life app has been a major needle mover of late, and I think it’s just the start of what could evolve into more of a Roblox story.

Don’t discount the digital or the technological capabilities of management. The company holds a world of potential, and at 1.9 times sales, I view the cheap Canadian stock as severely undervalued.

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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.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spin Master.

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