Canadian value stocks offer a lot of bang for a discerning investor’s buck. The Canadian markets in general are cheaper than their US counterparts, and the value segment of the Canadian markets is cheaper still. So, Canada is a great market in which to go hunting for value stocks.
Global investors seem to agree. Over the years, top value investors like Warren Buffett, Bill Ackman, and Mohnish Pabrai have taken sizeable stakes in Canadian value stocks. Popular TSX sectors for global investors include financials, energy, and utilities. In this article, I share exactly how I would allocate $10,000 to Canadian value stocks today.
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Banks
Financials are among the TSX sectors I’d add to my Canadian value portfolio. I’m putting my money where my mouth is here, because I actually have significant sums invested in TSX financials.
One TSX financial stock I own is The Toronto-Dominion Bank (TSX: TD). It’s Canada’s second-biggest bank, and also a big player in the U.S. market. TD stock trades at about 11 times earnings right now, making it considerably cheaper than the average large U.S. bank. It’s also cheaper than its TSX peers: Royal Bank of Canada is trading at 14 times earnings right now. So TD is cheaper than the alternatives.
TD Bank got cheap for a reason. The stock took a beating in 2023 and 2024 due to a money laundering investigation the company got caught up in. In the end, TD took a $3 billion fine and had its U.S. assets capped at $430 billion. TD initially took a big hit in the markets when these penalties were announced. But later, it turned out that TD would be able to use the money removed from its U.S. retail business to comply with the asset cap to buy back stock. TD stock has been rallying and outperforming both the TSX and the S&P 500 since that move was announced.
Energy
Another TSX value sector I’d allocate some money to is energy. TSX energy stocks are pretty cheap, trading at around 10 times earnings on average. The TSX energy sector is trading at a discount to the U.S. energy sector, which trades closer to 15 times earnings.
One TSX energy stock I hold is Suncor Energy Inc (TSX: SU). It’s fairly inexpensive, trading at 10 times earnings and 1.6 times book value. It also has seen a decent amount of growth historically, with adjusted earnings having compounded at 34% per year over the last five years. Suncor is a diversified energy company involved in exploration, production, refining and gas stations. It has a lot of different ways to make money, and can thrive in many different energy markets. So, I’m quite content holding Suncor Energy stock.
Foolish takeaway
Canada is a great market for discerning value investors to seek bargains in. The country as a whole trades at a discount to its U.S. peer group, and that holds for both value stocks and growth stocks. Many bargains can be found on the TSX. This year, the buying is much better than it has been in recent years. So, I’ve allocated a high percentage of my money to Canadian value stocks.
