The unpredictable nature of the stock market often causes high-quality companies to fall out of favour due to temporary challenges or broader market trends. These moments of uncertainty can create opportunities for savvy investors to buy undervalued stocks with significant upside potential.
By focusing on fundamentally strong businesses trading at attractive valuations, investors can benefit from these opportunities. Whether caused by sector-specific headwinds, misunderstood earnings, or general market sentiment, out-of-favour stocks often present tremendous long-term value for those who are patient and strategic.
Currently, several well-known Canadian stocks are trading below their highs despite maintaining strong fundamentals and attractive long-term growth potential.
So, if you’re looking for high-potential Canadian stocks that you can buy undervalued today, here are three stocks that offer compelling opportunities for long-term investors.
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A top Canadian growth stock with long-term potential
With so much uncertainty persisting in the stock market today, a high-potential stock like Cargojet (TSX: CJT) trading ultra-cheap is creating a significant opportunity.
Few companies dominate Canada’s air freight sector like Cargojet. It provides essential overnight air cargo services both domestically and internationally, making it a critical part of the supply chain for countless businesses.
Recently, though, Cargojet has faced challenges as air freight demand has declined alongside online shopping as inflation was surging and interest rates were increased.
These headwinds have caused a significant pullback in its stock price, which is now trading well below its 52-week highs. However, the impact on Cargojet’s business will almost certainly be temporary.
Not to mention, Cargojet’s diversified customer base and long-term contracts provide stability, and its ongoing expansion into international markets positions the company well for future growth.
Therefore, while Cargojet is out of favour and continues to trade at the bottom of its 52-week range, it’s certainly an opportunity you won’t want to miss.
A top recovery stock to buy while it’s still out of favour
In addition to Cargojet, another airliner that continues to offer savvy investors a significant opportunity is Air Canada (TSX: AC).
The last few years have been brutal for Air Canada as the pandemic decimated global travel demand and introduced fierce competition in the airline industry.
Despite these challenges and all the lingering effects they’ve had, Air Canada has taken significant steps to position itself for recovery, yet its stock remains well below its pre-pandemic highs.
In fact, not only has Air Canada’s operations recovered fully, with the stock now consistently reporting record revenue levels and earnings, but it’s also paying down debt and improving its financial position.
Furthermore, Air Canada is forecasting a 36% revenue increase by 2028 and has already started delivering strong results. For example, in its recent third-quarter earnings report, the airliner announced its first share buyback program since the pandemic, signalling confidence in its recovery.
Therefore, while Air Canada stock remains out of favour and relatively cheap, it’s one of the best stocks to buy now. Not only does it still trade more than 50% below its pre-pandemic price, but it also trades at a forward price-to-earnings (P/E) ratio of just 7.9 times, showing just how cheap it is today.
A resilient retail giant
In addition to Cargojet and Air Canada, another out-of-favour stock offering a significant opportunity for long-term investors is Canadian Tire (TSX: CTC.A).
Canadian Tire is a household name and one of the best-known brands in Canada. It has a vast retail network offering everything from automotive supplies to home goods. Despite its strong brand and diversified revenue streams, the stock has underperformed recently due to concerns over consumer spending and inventory challenges.
However, Canadian Tire’s fundamentals remain robust. The company’s growing loyalty program supports customer retention, while its focus on private-label products and cost efficiencies strengthens its competitive position. Additionally, its impressive e-commerce platform complements its physical store network, enhancing its ability to meet consumer needs.
Plus, not only is it trading at a forward P/E ratio of just 11.5 times, but it also pays an impressive dividend. Furthermore, with the stock out of favour, Canadian Tire’s dividend yield has risen to more than 4.6%, significantly higher than its five-year average forward yield of 3.8%.
Therefore, while one of the best long-term growth stocks remains out of favour, it’s easily one of the best investments to buy now.
