On Friday, the Toronto Stock Exchange (TSX) hit a fresh all-time high. The index level set that day was 25,992 — just a fraction above the previous high set in November 2024. While the TSX’s 1.1% gain over its November high is not a large one, it’s notable at a time when the major U.S. indexes — especially the NASDAQ 100 — remain down from their 2024 highs.
I extensively covered the story of how the U.S. markets got beaten down so badly this year in past articles. In summary, it was likely because of U.S. president Donald Trump’s tariffs. Stocks went down dramatically when he introduced them and went up dramatically when he started cancelling them. We can never be totally sure what moved markets, but the correlation here is hard to ignore.
As a result of the TSX’s comparatively strong performance this year, the index doesn’t have as many bargains as it once did. Big banks and utilities, in particular, are quite a bit pricier than their five-year average valuations. However, bargains can still be found. In this article, I explore where good value can still be found in the TSX index.
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Energy
Canadian energy stocks are still pretty cheap. The reason is that oil prices took a beating this year — again, likely because of Trump’s tariffs. Oil prices will likely recover if Trump continues his path of lowering tariffs. And it looks unlikely that he will raise his China tariffs to their peak level of the year. That caused a lot of problems in America’s economy, including mass selling off U.S. treasuries at a time when the president wanted to lower rates.
Consider Suncor Energy (TSX: SU). It trades at 9.4 times earnings, 1.4 times book, and four times operating cash flow. That’s a significantly cheaper valuation than the markets as a whole. Now, of course, a big part of how Suncor got this cheap was that oil prices crashed. That fact will likely reduce earnings for the current quarter. However, one quarter is not that big a deal in the grand scheme of things. Oil prices are already starting to recover from the tariff-induced selloff, and while Trump has not completely backed off on tariffs, it looks unlikely that tariff rates will be as high as they looked like they’d be at the peak of this year’s tariff concerns. In the meantime, fundamentals for a healthy oil market — such as slowly rising demand and OPEC mostly staying where it is — are in place.
Some financials
In addition to energy stocks in general, there are also some pockets of value to be found in TSX financials. Here, the value is not sector-wide, like with energy — there are many pricey bank stocks — but there’s value here and there.
Consider First National Financial (TSX: FN). Trading at 11 times earnings, 3.5 times sales and 3.7 times book, it’s cheaper than both the financial sector and the TSX Index. Now, this company is seeing its earnings go down this year, largely because of Bank of Canada rate cuts. The Bank of Canada has been cutting rates largely to avoid having too many heavily mortgaged homeowners default. Revenue declined in the trailing 12-month period for this reason. However, the company can eventually make up for lower mortgage rates with higher mortgage issuance. So, its earnings should start climbing again if rates stabilize.
Foolish takeaway
The Canadian markets aren’t as cheap as they were a few years ago, but pockets of value remain. If you go shopping in the TSX energy and financial sectors, you’ll likely be rewarded.
