The fear of a recession triggered by a trade war created a sell-off in the Toronto Stock Exchange. The most affected were the stocks in the lending and energy sectors, as they are exposed to high risk. A recession could spike up credit risk significantly as many companies and individuals could default.
However, lenders have been setting aside a significant allowance to absorb the defaults. They are closely monitoring the loans, working with borrowers, and trying to find a way to avoid default. The 2009 Financial Crisis has made lenders risk-averse and better prepared to handle defaults. While there is risk, there is also value as the Bank of Canada has cut interest rates. Moreover, the upcoming election in Canada promises tax cuts to leave more money in the hands of individuals to fight inflation and pay down debt.
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Two oversold TSX stocks that look like a bargain
Timbercreek Financial
Timbercreek Financial (TSX: TF) stock has crashed 29% since November 2025 as the lender failed to see a recovery in mortgage turnover. Moreover, loan repayments increased, reducing the lender’s interest income. Many REITs have been putting off lending over further interest rate cuts. However, lending activity showed signs of improvement when the company released its fourth-quarter results. Its credit utilization rate improved to 89.5% in 2024 from 78.7% in 2023, hinting that REITs are returning to borrowing.
These are difficult times. While retail and housing REITs saw a recovery, commercial REITs continued to struggle. Thus, Timbercreek has set aside a higher Expected Credit Loss (ECL). The short-term mortgage lender realized $1.5 million from the $3.4 million credit loss provision it had set aside by selling the property.
However, investors seem to have oversold the stock due to the fear of credit loss. As of December 31, 2024, Timbercreek Financials’ book value per share was $8.27, and the stock is trading at a discount of 16% at $6.95. The lender has its dividend payout covered with a ratio of 80.8% in the fourth quarter.
An improvement in lending activity could see a sharp uptick in the share price. Meanwhile, you can lock in a 9.9% yield by buying this stock while it is still a bargain.
goeasy stock
Non-prime lender goeasy’s (TSX: GSY) share price has fallen 19% since January 24, 2025, when U.S. President Donald Trump first announced tariffs on Canada. For an export-led economy that depends heavily on its largest trade partner, the United States, the tariff war ignited the fear of a recession. The hardest hit in a recession are the non-prime borrowers. They are already high-risk borrowers, and when the overall economy’s credit risk rises, investors become risk-averse.
Worries of a slowdown in discretionary spending could affect loan turnover. These are some of the effects of a recession. However, we are not yet in a recession. Moreover, the Canadian government might implement policies to avoid recession by pumping liquidity into the economy through tax and interest rate cuts.
The government has also capped maximum interest rates at 35%, effective January 1, 2025. This could affect a small portion of goeasy’s loan portfolio and reduce its overall yield to 31–32.5% from the previous guidance of 31.25–33.25%. However, the lender can sustain an economic slowdown and recover with the economy by maintaining discipline in lending.
goeasy has recovered from a worst crisis before, and that too with weaker fundamentals. This time, its fundamentals are strong, increasing its chances of recovery, thereby making it a bargain.
Final thoughts
While the two lenders carry credit risk, they are managing it tightly. If a recession never materializes, you could see their stock surge significantly in a few months. If the recession does materialize, they can withstand the crisis and grow in the long term. In either case, buying the dip can help you lock in a higher dividend yield.
