Finding value investing opportunities during periods of elevated market turbulence can be fun and richly rewarding. Patient investors looking for undervalued stocks to buy and hold for long-term horizons may wish to check out two hidden gems trading at significant discounts to their intrinsic value on the Canadian market. Alaris Equity Partners (TSX:AD.UN) and Firm Capital Property Trust (TSX:FCD.UN) are value stocks that combine attractive valuation metrics with sustainable business models and compelling dividend yields. Let’s take a closer look.
Undervalued Canadian stock: Alaris Equity Partners
Alaris Equity Partners is an income trust that operates with a unique business model many retail investors overlook. The company provides growth capital to private businesses primarily through preferred equity, common equity, and debt investments. It is a key conduit to investing indirectly into family-run and other well-established private businesses that have made millionaires. These businesses are so good that their owners won’t “sell” them to the public, but investors in Alaris Equity Partners stock can, through the investment firm.
Preferred equity structures give Alaris a priority in receiving distributions before common shareholders while allowing entrepreneurs to maintain control of their businesses. Distributions are usually contractually pre-determined annually.
A key strength in Alaris’s model is how its earnings from partner investments can grow as these businesses (partners) expand. The contractual agreements typically include annual adjustments based on performance metrics like revenue growth, providing built-in potential for distribution increases.
What makes Alaris particularly attractive is that it currently trades at around $18.30 per unit, representing a substantial 24.6% discount to its book value of $24.22. For value investors, this discount provides a margin of safety and potential for capital appreciation as this gap closes.
The company’s juicy 7.4% dividend yield is especially compelling given its conservative payout ratio of under 30%. According to the Rule of 72, this dividend alone could theoretically double your investment in less than 10 years, with consistent dividend reinvestment. Combined with a forward P/E ratio of just 8.9, Alaris offers both income and value.
While interest rates have posed challenges for the financial sector, recent Bank of Canada rate cuts could benefit Alaris by reducing borrowing costs and potentially increasing investment activity. However, investors should monitor how economic shifts including potential trade policy changes might impact Alaris’s partner companies.
A Canadian value stock to check out today: Firm Capital Property Trust
Firm Capital Property Trust represents another compelling value opportunity in the Canadian real estate space. The real estate investment trust (REIT) manages a diversified portfolio spanning retail, industrial, multi-residential, and manufactured home properties in Canada.
What’s impressive about Firm Capital is its ability to maintain exceptional occupancy rates – 94.5% for commercial properties, 95.3% for multi-residential, and a perfect 100% for manufactured home communities. This occupancy strength speaks to the quality of its properties and management approach.
Currently trading at a 23.8% discount to its most recent net asset value (NAV) of $7.83, Firm Capital offers substantial upside potential for patient investors. After facing distribution coverage challenges earlier, Firm Capital has improved its AFFO (Adjusted Funds From Operations) payout ratio to sustainable levels around 100% in late 2024. Regular rent escalations and strong occupancy rates should continue supporting distribution stability in 2025 and beyond.
Most appealing is the REIT’s 8.8% distribution yield that provides generous monthly passive income while you wait for this NAV valuation gap to close. Based on the Rule of 72, this distribution alone could double your investment in about 8.3 years through consistent reinvestment.
I find particular comfort in the fact that management and trustees own approximately 10% of the REIT. This significant skin in the game creates strong alignment between leadership and unitholders.
As mortgage renewals continue to pressure Canadian homeowners in 2025, Firm Capital’s residential properties could see sustained demand from those priced out of homeownership, potentially supporting further rent growth and occupancy stability.
Investor takeaway
Both Alaris Equity Partners and Firm Capital Property Trust are overlooked Canadian value stocks that offer attractive entry points for investors willing to take a long-term perspective while collecting substantial dividends along the way.
