Canada’s market is starting to roar again, with the TSX Index closing off the third quarter with a nearly 15% gain. Sure, it’s not as impressive as the S&P 500, which could end the first three quarters of 2024 with a gain of more than 20%.
That said, as tech continues to feel turbulence and the AI stocks tread water over tempered expectations, I’d look for value to stay in the spotlight, perhaps for another year or so. In any case, the Canadian stock market seems like the place to be if you like cheap multiples and even larger dividend yields.
Sure, there are many impressive, cheap dividend stocks in the U.S. market. However, with deeper value options on this side of the border, I’d argue that it makes less sense to change currency to pick up shares in a business that may not be nearly as rich an undervaluation.
In this piece, we’ll review two Canadian stocks that are picking up speed yet remain modestly valued relative to their long-term growth potential.
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TFI International
Shares of logistics company TFI International (TSX:TFII) are fresh off a nasty correction following a second quarter that failed to impress. With shares sitting down more than 15% from all-time highs, investors bullish on the Canadian economy’s year-ahead prospects may have a chance to snag the well-run trucker at a nice discount.
At writing, shares go for 25.1 times trailing price-to-earnings (P/E) or 16.1 times forward P/E, making it a relatively affordable way to pick up one of the best Canadian transport plays out there. Of course, the transports are going to feel the wobbles as the economy faces its odd stumble. While rate cuts and a soft landing are now the expectation, it remains uncertain as to how the economy will react once the Bank of Canada looks to consider its next steps.
Arguably, central banks still have a tough task ahead of them as they look to reduce rates without allowing inflation a chance to come back.
For now, however, it seems inflation is playing by the rules. All that’s left us putting that padding in place so the economy doesn’t get hurt in any “hard landing” type of scenario. In any case, if you’re bullish on the long-term future of the North American economy, I think you have to stash away TFI for the long haul. The 1.1% dividend yield may not seem like much, but it’s poised for major growth over the next five years, especially if the Canadian economy picks up speed.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is one Canadian bank stock that’s an easy reach for income investors who seek a relative top performer. At writing, shares of RY are flirting with all-time highs, while many of its Big Six peers are still miles away from theirs.
As the $237.4 billion banking behemoth looks to bring out the best in its past acquisitions (think the Canadian assets of HSBC) while making subtle shifts to upper management (a new CFO was recently announced), I think there’s a pathway for even higher highs.
For now, the stock goes for 14.9 times trailing P/E, with a 3.4% dividend yield. You can get cheaper stocks with far greater yields, but in terms of risk management, it’s tough to top RY stock, especially if you’re looking to strengthen the core of your portfolio for the new year.
