Could This Undervalued Canadian Stock Be Your Ticket to Millionaire Status?

If your goal is to build a million-dollar portfolio, you need stocks that can give you that kind of growth in the long term.

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If you want to create a million-dollar portfolio in your Tax-Free Savings Account (TFSA), you will have to invest $7,000 every year for the next 18 years in a portfolio that generates a compounded annual growth rate (CAGR) of 20%. Even Constellation Software, Canada’s most consistent growth stock, couldn’t achieve an 18-year CAGR of 20%.

In the long-term investment approach, risk is relatively less than it is in the short term. You can rebalance stocks by booking profits in opportunistic, cyclical, or trending stocks and reinvesting the profits in undervalued stocks. In some years, your portfolio may book a 40% profit, in some a 10% profit, and in some a 10% loss. The aim is to get the average annual return to 20%.

There are many ways to get that 20-50% annual return. One is to find a growth stock, another is a turnaround stock, and the third is an undervalued stock. These stocks can see a spurt of growth that can last for a year or two and generate an average annual return of 20-50%.

This undervalued Canadian stock could be your ticket to millionaire status

Created with Highcharts 11.4.3Bce PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

BCE (TSX:BCE) stock has more than halved over the last 30 months. Analysts have downgraded the stock as the overall telecom sector is undergoing a turnaround. BCE was the hardest hit because its restructuring cost thousands of jobs. The telco is converting into a techno company and could see further cost reduction and reshuffle in the business. The benefits of restructuring will soon be realized.

Weak base year (2024) earnings could help BCE report double-digit profit growth in the second half of 2025. Analysts have downgraded BCE as they anticipate weaker earnings in 2025. However, if you look at the price-to-earnings (P/E) ratio with a five-year horizon, the story could be different.

Once the write-offs and one-off expenses such as severance pay, acquisition cost, and debt restructuring are over, the increasing profits could drive the stock price. BCE’s trailing P/E ratio of 381 is not the right measure as several one-off expenses diluted the earnings. The forward P/E ratio of 12 is way below last year’s ratio of 16, making it an undervalued stock.

Even if we expect BCE’s earnings per share (EPS) to recover to its peak of $2.76 in the next five years, the stock is trading at 12.4 of that EPS. If we assume the stock reaches a 16.0 P/E ratio when the EPS reaches $2.76, BCE’s stock price should increase to $44 ($2.76 x 16), representing a 28% upside. And this is just capital appreciation.

In the coming five years, you can also enjoy an 11.6% annual dividend yield, assuming BCE does not grow its dividends.

How your next five-year returns could look

YearBCE Stock Price
6% CAGR*
BCE DRIP SharesBCE Share countBCE Dividend per shareTotal dividend
2025$34.50145.0$3.99$578.55
2026$36.5715.8160.8$3.99$641.67
2027$38.7616.6177.4$3.99$707.72
2028$41.0917.2194.6$3.99$776.44
2029$44.0017.6212.2$3.99$846.85
Dividend income from a $5,000 investment in BCE DRIP.

Assuming you invest $5,000 in BCE DRIP today, you can buy 145 shares that will give $578.55 in annual dividends. This dividend money could buy you 15.8 DRIP shares, assuming the share price grows at an average rate of 6%. The DRIP will keep adding new shares, and by the end of five years, you could own 212 shares. If BCE stock price reaches $44 by 2029, your portfolio will be worth $9,327 (212 shares X $44), and you will earn $846.85 in annual dividends. The $5,000 investment could become $10,174, representing a five-year CAGR of 15.3%.

However, it is a conservative estimate. The stock price could surge to $55, and dividend growth could resume after the third year. Such events could boost your CAGR to 20% and above and put you on the path of a million-dollar portfolio. You could continue the BCE DRIP and allow the one-time investment to compound for 10-15 years. The power of compounding can accelerate your million-dollar journey.

Should you invest $1,000 in BCE right now?

Before you buy stock in BCE, consider this:

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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