The good news for long-term investors looking for value in the Canadian stock market is that there are plenty of options to choose from. Looking at the Canadian stock market at a high level, valuations are much lower than what investors may be used to seeing in the United States. While some markets may be even cheaper in Europe, recent spikes in activity on that continent have made Canadian value stocks even more attractive in the eyes of many investors.
Indeed, I’m one such investor. I think the Canadian stock market has plenty to offer long-term investors who seek portfolio stability and strong balance sheets. In this article, I’m going to highlight two pertinent examples of this value and why these stocks should outperform over the long haul.
So, without further ado, let’s dive in!
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Manulife
Manulife Financial (TSX: MFC) continues to be one of my top picks for value-conscious investors looking at prime opportunities in today’s market. Trading at less than 15 times earnings with a dividend yield of more than 4%, this is an insurance giant that looks poised to see even more upside ahead.
Indeed, looking at the stock chart above, it’s clear that most investors have done well holding Manulife, even relative to many of the tech stocks out there in the market. With a five-year return of more than 150% for investors (excluding the company’s aforementioned high dividend yield), long-term investors have benefited from holding shares of this insurance giant for a long time.
I expect this trend to continue, mainly due to the company’s underlying business model, which revolves around providing insurance and wealth management services to a growing clientele both domestically and abroad. Indeed, Manulife’s expanded footprint in key growth markets (such as China and the U.S.) positions the company well to maintain its strong balance sheet and provide even more top and bottom-line growth over the long term.
Alimentation Couche-Tard
I’m going to start off by saying Alimentation Couche-Tard (TSX: ATD) isn’t necessarily the value stock it once was. In other words, the market has caught on. Currently trading at a price-to-earnings ratio of 19.5 times, one could argue that this stock is fairly valued at its current stock price.
That may be a fair assessment for investors who are backward-looking. But this cash flow generating machine continues to spit out strong earnings quarter after quarter, raising the bar higher for what investors can expect in terms of bottom line growth. Put another way, this is a stock that’s growing just how many fundamentals-oriented investors want to see (from the bottom line up).
Couche-Tard has benefited over the long term from consolidating a fragmented market for convenience stores and gas stations. Expanding globally, Couche-Tard has become an oft-overlooked Canadian giant in a sector that’s rightly considered “unsexy” by many investors. As such, its valuation hasn’t represented full value for some time, and I’d argue there’s still plenty of juice to be squeezed out of this fruit at its current state.
If Couche-Tard’s earnings growth continues to compound around 8-9% per year, that’s the amount of upside I’d expect investors to achieve (in addition to the company’s small but meaningful 1.1% dividend yield). All told, I’m expecting double-digit annualized returns from this name over the coming decade and beyond, as I see no fundamental change in the company’s growth potential over this time frame.
