Got $1,000? Buy These 3 Canadian Value Stocks for Superior Returns

Given their attractive valuations and healthy growth potential, I expect these three value stocks to outperform over the next two years.

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With inflation at a multi-decade high, the Federal Reserve could increase interest rates as soon as next month. Rising interest rates could raise borrowing costs, thus lowering the margins of growth stocks, which require higher capital to fund their growth initiatives. So, I expect value stocks to outperform growth stocks in the near to medium term. So, if you are interested in investing in value stocks, here are my three top bets.

Air Canada

After a challenging last two years, Air Canada (TSX:AC) is witnessing a solid buying this year by trading around 16% higher. The easing of travel restrictions amid the falling COVID-19 cases, rising vaccination, and recovery in air travel amid increased economic activities appear to have led the company’s stock price to rise. Additionally, the media reports suggest that the federal government could further ease restrictions, such as the removal of the mandatory molecular test for international travelers, which could further boost the demand for air travel.

Amid the rising demand, Air Canada has announced adding new routes and increasing the service to several key cities worldwide. Given its strong liquidity of $14.4 billion, the company is well equipped to carry out its growth initiatives. The company’s valuation looks attractive, with its forward price-to-sales standing at 0.6. So, I believe Air Canada would be an excellent buy for investors with a two-year time frame.

Suncor Energy

Suncor Energy (TSX:SU)(NYSE:SU) has outperformed the broader equity markets this year by rising 21.3%. Rising oil prices appear to have increased investors’ confidence, driving Suncor Energy’s stock price higher. Amid concerns over tightening supplies due to rising geopolitical tensions and growing demand, oil prices have reached a seven-year high and are trading over $94 per barrel.

Given the market condition, I expect oil prices to remain elevated in the near to medium term, benefiting oil-producing companies like Suncor Energy. Meanwhile, the company expects to increase its upstream production by 5% this year, while its refinery utilization rate could also rise amid the rising demand for petroleum products. Further, its cost-cutting initiatives, lower debt levels, and share repurchases could also boost its financials in the coming quarters. Despite its healthy growth prospects, its forward price-to-earnings multiple stands at an attractive 9.2.

Further, Suncor Energy also pays a quarterly dividend, with its forward yield standing at 4.38%. So, I believe Suncor Energy would be an excellent addition to your portfolio in this volatile environment.

Canopy Growth

Since reporting its impressive third-quarter earnings on February 9, Canopy Growth’s (TSX:WEED)(NASDAQ:CGC) stock price has increased close to 20%. Its revenue and loss per share came in at $141 million, and $0.28, outperforming analysts’ expectations. Although its top-line declined by 8% compared to its previous year’s quarter, its adjusted EBITDA and net losses showed significant improvement. Its net losses fell by 86%.

Despite the sales decline, the company continues to be a leader in the Canadian premium flower category with a 10% market share. It had introduced 10 new premium flower strains during the quarter, which strengthened its position in the market. The company is expanding its Cannabis 2.0 product offerings to drive growth. It has also streamlined its new product development process to improve efficiency, effectiveness, and time to market.

In the United States, Canopy Growth continues to make gains in the beverage and vaporizer segments through BioSteel and Storz & Bickel. Also, it looks to strengthen its position in the CBD segment through innovative line extensions and strong distribution channels. Given these infrastructures, the company is well equipped to capture the THC market upon legalization. Given its healthy growth potential and a 79% discount from its 52-week high, I am bullish on Canopy Growth.

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 has no position in any of the stocks mentioned. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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