The Canadian stock market has performed remarkably well, with iShares S&P/TSX 60 Index ETF trading near its all-time high. Over the last 12 months, it has returned nearly 22%, significantly outperforming its 10-year annualized return of about 9%. However, even in a strong market, there are always undervalued Canadian stocks offering long-term investment opportunities. If you look carefully, there’s value to be found in some high-quality names that are currently trading below their potential.
Here are three undervalued Canadian stocks to consider buying now.
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Nutrien: A high-yield buy in agriculture
Nutrien (TSX: NTR), a leading agriculture retailer and top producer of potash and nitrogen, has seen a significant sell-off in its stock since 2022. Because of this, it offers an attractive dividend yield of nearly 4.7%, paid in U.S. dollars, which has been increasing by about 5% annually since the company formed from the merger of Agrium and Potash Corp in 2018.
The company’s financials remain solid, with an investment-grade S&P credit rating of BBB. Nutrien’s payout ratio is a healthy 45% of free cash flow and 61% of adjusted earnings. Analysts also believe the stock is undervalued, with an average 12-month price target suggesting upside potential of about 23%. For long-term investors looking for income and growth in the agriculture sector, Nutrien presents an interesting opportunity at its current price.
Toronto-Dominion Bank: A blue-chip stock on sale
Toronto-Dominion Bank (TSX: TD) has been out of favour recently, with its stock down around 10% over the last 12 months. Trading at $76.29 per share at writing, TD is currently priced about 14% below its historical price-to-earnings (P/E) ratio, making it undervalued compared to its long-term averages.
This blue-chip stock offers a combination of dividend income, earnings growth, and potential valuation reversion, which could lead to total returns of about 13% per year over the next three years. Additionally, TD recently declared a dividend hike, which boosted its dividend yield to 5.5% — a solid return while investors wait for price appreciation. With its strong fundamentals and attractive valuation, TD is a reasonable opportunity for those looking to invest in an established financial institution.
Canadian National Railway: A dividend champion at a discount
Canadian National Railway (TSX: CNR) is another blue-chip stock currently trading at a discount. The stock has fallen about 11% over the last year, creating a buy-the-dip opportunity for long-term investors. CNR has consistently delivered growing earnings over the past two decades, and although setbacks have occurred, the company’s earnings have always bounced back and continued to grow.
Investors can take comfort in CNR’s impressive dividend history, having increased its dividend for about 28 consecutive years with a five-year growth rate of 11.7%. At the $147.38 per share at writing, the stock offers a 2.3% dividend yield, with another dividend hike expected next month. Analysts believe CNR shares are undervalued by around 15%, with near-term upside potential of 18%. For income-focused investors with a long-term horizon, Canadian National Railway is a good consideration at current levels.
The Foolish investor takeaway
While the Canadian stock market is at a high point, there are still good opportunities to buy undervalued stocks with solid long-term growth potential. Nutrien, Toronto-Dominion Bank, and Canadian National Railway are all prime examples of companies currently trading below their intrinsic value. With strong dividends, solid financials, and the potential for price appreciation, these stocks present attractive investment opportunities for patient, long-term investors.
