Contrarian TSX investors are looking at the pullback in global stock markets and wondering which top Canadian stocks might be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $67 at the time of writing. The stock is down nearly 12% in 2025 after enjoying a nice rally in the final months of 2024.
The bank is going through a transition process that will direct more growth capital to opportunities in the United States and Canada and less on Latin America, where Bank of Nova Scotia spent billions in the past two or three decades to acquire and build businesses in Mexico, Peru, Chile, Colombia, and other markets in the region.
Management recently sold the operations in Colombia, Panama, and Costa Rica. Bank of Nova Scotia also spent US$2.8 billion in 2024 to buy a 14.9% stake in KeyCorp, an American regional bank.
New tariffs recently announced by the U.S. will impact all countries. Negotiations will continue, and adjustments are expected in the coming months. Canada and Mexico might not be hit as hard as other U.S. trading partners when it all shakes out. That could be an advantage for Bank of Nova Scotia with its banking presence in the two countries.
Canadian banks facing a wave of fixed-rate mortgage renewals this year should benefit from falling bond yields that are occurring as investors move into government bonds to ride out the economic uncertainty. The banks will be able to offer lower rates to their customers, which should help reduce defaults.
Investors need to be patient, but the current 6.25% dividend yield on BNS stock pays you well to ride out the turbulence.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) trades near $42.50 at the time of writing. The stock is down nearly 20% in the past year due to a steady decline in oil prices.
The price of West Texas Intermediate (WTI) oil is back below US$70 per barrel on fears that new U.S. tariffs will trigger a global recession and cause a slump in oil demand. Oil prices are also under pressure due to an announcement by OPEC that the consortium of oil producers will increase supply to the market.
The U.S. relies on Canadian oil and natural gas. This is why announced tariffs on Canadian energy products are relatively low at a rate of 10% and might even disappear as negotiations continue. The weakening of the Canadian dollar against the American dollar in recent months has already offset a good chunk of the impact of a 10% tariff on energy products. The price differential between WTI and Western Canadian Select (WCS) has also narrowed.
The Trans Mountain expansion that went into service last year is giving Canadian oil producers access to new markets. New liquified natural gas (LNG) export facilities being completed on the coast of British Columbia will open up new markets for natural gas producers. In addition, new east-west oil and gas pipelines in Canada could once again be on the table as the country moves to decrease its reliance on the United States. This would benefit CNRL, as it is a major producer of both oil and natural gas.
Near-term volatility is expected, but investors can now pick up a decent 5.5% yield on CNQ stock. The board has increased the dividend in each of the past 25 years.
The bottom line on contrarian TSX picks today
Additional downside is certainly possible in the coming weeks and months as the impacts of the U.S. tariffs on the Canadian and global markets become clearer. That being said, contrarian investors with a buy-and-hold strategy focused on dividends might want to start nibbling on BNS and CNQ while they are out of favour.
