The ongoing market turmoil has dragged valuations of companies across multiple sectors lower in April 2025. Historically, market corrections have allowed long-term investors to gain exposure to quality stocks at a lower multiple and benefit from outsized gains when sentiment improves. I have identified three undervalued Canadian stocks I’d buy and hold for decades in this article.
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Canadian undervalued stock #1
Valued at a market cap of $560 million, Martinrea International (TSX: MRE), designs, develops, manufactures, and sells metal parts, assemblies, modules, and fluid management systems for the automotive industry.
The TSX stock is down 47% from all-time highs due to sluggish demand and the ongoing tariff war. Martinrea executives warned that potential tariffs on auto parts between North American countries could cripple the industry during their fourth-quarter earnings call.
The Canadian auto parts supplier reported $5 billion in revenue for 2024 and a 5.3% adjusted operating income margin. It is undertaking a $50 million selling, general, and administrative cost reduction initiative that is expected to be fully implemented within 12–18 months.
Martinrea took a $129 million non-cash impairment charge in Q4 related to underperforming EV-related assets in Europe and China, where some programs are running at less than 20% of projected volumes.
CEO Pat D’Eramo emphasized that the North American auto industry cannot operate efficiently without cooperation between the U.S., Canada, and Mexico.
For 2025, Martinrea expects sales between $4.8 and $5.1 billion with an adjusted operating income margin of 5.5%. Valued at 3.6 times the next 12 months’ free cash flow, the TSX stock trades at a discount of 90% to price target estimates.
Canadian undervalued stock #2
ACT Energy (TSX: ACX), valued at $155 million, provides directional drilling services to oil and natural gas companies in Canada and the U.S. It offers remote directional and measurement-while-drilling (MWD), automated gamma, drilling optimization, well planning, and rotary steerable services.
Analysts tracking the energy stock expect it to expand its free cash flow to increase from $23.8 million in 2023 to $83 million in 2028. If the stock is priced at 10 times forward free cash flow, it should gain over 300% from current levels over the next three years.
Bay Street remains bullish on Act Energy and expects it to gain 200%, given consensus price target estimates.
Canadian undervalued stock #3
The final TSX undervalued stock on the list is Cascades (TSX: CAS), a manufacturer of packaging and tissue products. In Q4 2024, Cascades reported in-line results but suspended its usual practice of providing near-term financial guidance due to uncertainty surrounding potential U.S.-Canada tariffs.
“The risk of bilateral tariffs being implemented has the potential to have broader implications on the economy and is difficult to predict,” said CEO Hugues Simon.
The Quebec-based packaging and tissue products manufacturer disclosed that 11% of its sales come from products made in Canada and sold into the U.S., with cross-border intercompany transfers increasing this tariff exposure to 15% of revenues.
Simon outlined mitigation efforts, including changes to raw material sourcing, production reallocation to minimize cross-border transit, and the implementation of new commercial strategies with suppliers and customers.
In Q4, Cascades reported a consolidated EBITDA (earnings before interest, tax, depreciation, and amortization) of $146 million, an increase of 4% sequentially and 20% year-over-year, driven by substantial contributions from packaging activities.
Cascades is on track to more than double its free cash flow from $111 million in 2024 to $241 million in 2025. So, valued at 3.9 times forward FCF, the TSX stock trades at a 52% discount to consensus estimates in April 2025.
