While tech stocks have driven the broader indices to all-time highs over the past two years, the market breadth will likely broaden in 2025 due to cooling inflation and lower interest rates.
It seems the time is ripe to buy and hold quality undervalued stocks across multiple sectors and benefit from outsized gains over the upcoming decade. Here are two cheap Canadian stocks you should consider adding to your equity portfolio right now.
Kraken Robotics stock
Valued at a market cap of over $700 million, Kraken Robotics (TSXV:PNG), is a marine technology company engaged in the design, manufacture, and sale of software-centric sensors, batteries, and underwater robotic systems for unmanned underwater vehicles used in military and commercial applications.
With operations in Canada, the U.S., and Europe, Kraken has increased its sales from $2.4 million in 2014 to $69.6 million in 2023. In the last 12 months, Kraken’s revenue has risen by 81% year over year to $91.2 million. Unlike other growth stocks, Kraken reports a consistent profit, given an operating margin of almost 15% in the past year.
Armed with a debt-free balance sheet, Kraken is forecast to end 2026 with adjusted earnings per share of $0.12 per share, up from $0.03 per share in 2023. So, priced at 22.5 times forward earnings, Kraken is relatively cheap, given its robust growth estimates.
Kraken stock has returned 350% to shareholders in the last five years, comfortably crushing TSX index returns. Analysts remain bullish and expect the stock to gain 10% over the next 12 months.
EQB stock
Despite a challenging macro environment, EQB’s (TSX:EQB) revenue in the fiscal fourth quarter (Q4) of 2024 (ended in October) exceeded $1 billion for the first time. It ended Q4 with a common equity tier-one ratio of 14.3% and a return on equity of 15%, higher than most other big banks in North America.
With record annual earnings of $438 million, EQB grew its book value per share by 10% year over year in Q4. Notably, EQB is facing certain challenges in the equipment financing vertical, forcing it to increase its provisions for credit losses by $16 million and impacting earnings by almost $0.30 per share.
EQB is shifting focus to higher credit quality customers and tightening its credit underwriting policies to offset this weakness.
EQB ended fiscal 2024 with $68 billion in loans under management, up 9% year over year. Its digital banking business increased the customer base by 28% to 513,000, while deposits grew by 10% to $9.1 billion.
EQB expects diluted earnings to grow between 12% and 15% annually, with a return on equity of at least 15% over the next few years. Today, it pays investors an annual dividend of $1.96 per share, up from just $0.12 per share in 2004. Over the last two decades, these payouts have risen by more than 15% annually, and the bank expects this momentum to continue in 2025 and beyond.
Analysts tracking EQB expect earnings to expand from $11.03 per share in 2024 to $13.73 per share in 2026. So, priced at 7.2 times forward earnings, EQB stock is quite cheap and trades at a discount of 18% to consensus price target estimates.
