Underrated Canadian Stocks to Buy Now Before They Rally

These two Canadian stocks are ideal for those looking for a deal, while also gaining access to the burgeoning industries of tech and healthtech.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published November 26, 2024 4:20 pm EST

In the bustling world of the stock market, it’s easy for smaller names to be overshadowed by giants. Yet OpenText (TSX: OTEX) and WELL Health Technologies (TSX: WELL) are quietly building strong cases for themselves as underrated Canadian stocks with the potential for significant rallies. These two Canadian stocks operate in vastly different industries. Yet they share the common traits of innovation, strategic growth, and value for investors seeking promising opportunities.

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The companies

OpenText, a global leader in information management, is proving that it’s more than just a tech company. It’s an essential partner for businesses navigating the complexities of data, cybersecurity, and artificial intelligence (AI). In its most recent quarter, OpenText reported revenues of $1.5 billion, marking a 16% year-over-year increase. This impressive growth stems from strong demand for its AI-integrated information management solutions. Profitability has also improved, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) climbing 27% to $464 million and an EBITDA margin of 32%. These numbers reflect a company that’s not only growing but also becoming more efficient in its operations.

Meanwhile, WELL Health Technologies is shaking up the healthcare industry with its digital-first approach. In the second quarter of 2024, WELL achieved record revenues of $243.1 million, a staggering 42% increase year-over-year. This growth was driven by strategic acquisitions and organic expansion. This contributed an impressive 21% of the total. WELL’s commitment to omni-channel patient services of combining in-person and digital healthcare position it as a key player in the rapidly evolving healthcare space.

Future outlook

Looking to the future, OpenText is making strategic moves to ensure sustained growth, particularly in the cloud and AI sectors. The Canadian stock has set an ambitious target of 2–5% cloud revenue growth this fiscal year, with aspirations of reaching 7–9% in subsequent years. A major part of this growth strategy is its Aviator platform. This leverages AI to streamline and enhance information management. Aviator is already gaining traction with enterprise clients, showcasing OpenText’s ability to seamlessly integrate cutting-edge technology into its existing product lines.

WELL Health, on the other hand, is actively expanding its footprint in the digital healthcare sector. The company has announced plans to acquire INLIV, a Calgary-based provider of premium primary care and executive health services. This acquisition aligns with WELL’s strategy to diversify its offerings and strengthen its geographic reach. With the healthcare industry increasingly shifting toward digital solutions, WELL is well-positioned to capture market share and deliver consistent growth.

Still valuable

From a valuation perspective, both stocks offer attractive entry points. OpenText trades at a forward price/earnings (P/E) ratio of 8.2, significantly lower than many of its tech peers – thus suggesting substantial upside potential as the company continues to optimize its operations and expand its cloud offerings. WELL Health, with a market cap of approximately $1.3 billion, is trading below its average 12-month price target of $7.25, signalling room for growth as its acquisitions and organic initiatives bear fruit.

Industry trends also play a crucial role in the narratives of these two Canadian stocks. OpenText operates in the information management sector. This is experiencing increasing demand for solutions that can handle vast amounts of data securely and efficiently. The demand is only expected to grow as businesses prioritize digital transformation. Similarly, WELL Health is riding the wave of the digital healthcare revolution, with telehealth and omni-channel patient care becoming cornerstones of modern healthcare delivery.

Bottom line

For investors, OpenText and WELL Health represent two sides of the same coin: steady, strategic growth with an eye on the future. OpenText offers exposure to the tech sector with a focus on cloud and AI. This makes it an appealing option for those who missed the boat on high-flyers. Meanwhile, WELL provides a way to invest in the burgeoning digital healthcare industry – one that is poised for continued expansion as technology reshapes the way we approach health services.

OpenText and WELL Health Technologies are two underrated Canadian stocks that deserve a closer look. The strong financial performances, forward-looking strategies, and alignment with industry trends make each compelling choices for investors seeking value and growth. Whether you’re drawn to tech or healthcare, these two companies offer a promising mix of stability and upside that’s hard to ignore.