There’s no shortage of top Canadian stocks trading cheaply these days, especially as elevated interest rates and the threat of a prolonged trade war continue to impact the economy and weigh on market sentiment. However, while plenty of stocks have seen their share prices fall in recent weeks, one of the best Canadian value stocks to buy right now is InterRent REIT (TSX:IIP.UN).
With InterRent trading below $11.50 a share today, it’s a stock that continues to look incredibly attractive for long-term investors.
The residential real estate company has certainly faced some short-term headwinds over the past couple of years. But despite those challenges, it’s shown resilience in its operations and continues to position itself well for long-term growth.
That’s why, with the stock continuing to trade well off its highs and at such a low valuation, it just might be one of the best Canadian value stocks to buy today.
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How InterRent REIT got so cheap
There’s no question that high interest rates have hurt real estate stocks across the board. With the cost of borrowing much higher, it’s harder for real estate investment trusts (REITs) to pursue growth through acquisition, and more importantly, it significantly reduces how investors value long-term cash flow.
As a result, even some of the highest-quality REITs in Canada have seen their valuations shrink, which is exactly what’s happened to InterRent.
After peaking at just under $19 back in 2021, the stock’s price was cut in half, and it even briefly traded below $9 just one month ago. That’s a massive drop, especially for a company that demonstrated for years its ability to expand its portfolio and create value for shareholders.
This disconnect between the company’s actual performance and its stock price is why InterRent REIT now trades at such an attractive valuation and why long-term investors have an opportunity to buy one of the best Canadian stocks while it’s severely undervalued.
Is it the best Canadian value stock to buy now?
Although the stock price has been in decline for a few years, InterRent REIT still has a tonne of potential to continue growing its operations over the long haul, especially as interest rates decline.
For years, InterRent perfected the strategy of expanding its portfolio through acquisitions and creating organic growth through upgrades and renovations in its existing properties. So, although rising interest rates made financing its growth strategy more expensive and have put pressure on the bottom line, InterRent REIT still has a tonne of long-term potential. Furthermore, its rental revenues continue to climb steadily.
Plus, in addition to InterRent’s operations, housing demand in Canada continues to grow, and supply remains extremely limited. That’s a dynamic that’s not going to change anytime soon. InterRent is well-positioned to benefit from this ongoing imbalance, and as an owner of residential real estate, it should be mostly immune from any impacts due to tariffs.
The stock has become so cheap now, in a higher interest rate environment that’s almost certainly temporary, that it’s even attracted the attention of hedge funds. For example, earlier this month, Anson Funds Management, an activist hedge fund, announced it had built a 9% stake in InterRent, making it the residential REIT’s largest investor.
Since that announcement, InterRent has already begun to see its share price recover. However, it still trades ultra-cheap, making it one of the best Canadian value stocks to buy now.
How cheap is InterRent REIT?
While the market waits for rate cuts and a more favourable macroeconomic environment, InterRent REIT looks like one of the best Canadian value stocks that long-term investors can buy today.
For example, right now, InterRent trades at a forward price-to-funds-from-operations (P/FFO) ratio of just 17.4 times. That’s well below its five-year average forward P/FFO ratio of 23.9 times.
In addition, as the REIT’s share price has fallen significantly, its dividend yield has increased to attractive levels. Today, InterRent offers investors a forward yield of 3.5%, which is significantly higher than its five-year average forward yield of just 2.6%.
Therefore, while this high-potential, high-growth residential REIT trades so cheaply, it’s certainly one of the best Canadian value stocks that long-term investors can buy today.
