The Canadian stock market has been in rally mode after a tough September and October. It is hard to say if this will be sustained. Fortunately, there are some great stocks in high-quality businesses that continue to trade at a steep discount to their long-term value.
If you don’t mind digging through the weeds to find a gem, there is value to be found in this market. Here are three great Canadian stocks to buy today before they recover.
A real estate play with great long-term returns
Colliers International Group (TSX: CIGI) stock has been down in the dumps. It has traded sideways for almost a year and a half. For a stock that has compounded annual returns by around 18% per year for more than a decade, it has been a tough few years.
Why? Commercial real estate transactions have basically grounded to a halt after interest rates rapidly rose. 15-20% of its revenues come from its capital markets business. This has impacted earnings growth in 2023. The company has had to revise guidance several times.
However, this is only a temporary issue. At some point, real estate transactions must occur. Once debt markets stabilize, there could be a tsunami of asset transactions that could be very supportive of Colliers’s bottom line.
The great news is that Colliers’s business is diversified. 70% of its earnings come from recurring revenue businesses like property management, project management, engineering services, and asset management.
While the real estate market downturn is ugly, it may be a great opportunity for Colliers to further its acquisition strategy. If you can be patient for the market to turn around, this Canadian stock only trades for 15 times price to earnings.
A tiny insurance stock with big potential
Trisura Group (TSX: TSU) is another stock set for a strong recovery in 2024. Trisura is a specialty insurance provider in Canada. It also has insurance fronting operations in the U.S.
The company has an impressive growth trajectory. This Canadian stock is up 393% in the past five years. However, earlier this year, the company ran into some trouble after it had to run off a significant program in the U.S. This forced a significant write-down, and the stock dropped.
Fortunately, the company has been performing very well since. Adjusting for the write-down, the company has a return of equity of 20%. Its combined ratio (losses and expenses divided by premiums) in its Canadian operations is 75%.
The company grew revenues by 30% last quarter. The market hasn’t picked up its growth recovery yet. Today, it trades at an attractive discount to peers. This Canadian stock is primed for a good recovery in 2024.
A top Canadian transport stock
Canadian Pacific Kansas City (TSX: CP) has fallen 3% this year. Canadian rail stocks have been hit with a variety of issues, including port strikes, wildfires, cold weather, and a slowing economy. There is also concern that the Mexican government may wish to convert part of its line into passenger service (which could hamper its freight business).
As a result, earnings have come in weaker than expected. Canadian Pacific has had to revise its guidance for 2023. These are largely temporary challenges.
Canadian Pacific has one of the largest growth opportunities amongst its peers after its takeover of Kansas City Southern early this year. It now owns the only line that crosses Canada, the U.S., and Mexico.
This provides an attractive competitive advantage and many growth opportunities. It believes it could double earnings in five years or less. Now that the stock has pulled back, it could be an attractive entry point.
