The TSX just hit a new all-time high. Investors who missed the bounce off the tariff pullback are wondering which top Canadian stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Canadian National Railway
Canadian National Railway (TSX:CNR) is up about 12% this month, but the stock is still down nearly 14% in the past year and is about 20% below its 2024 high.
The recent pop is due to new optimism that the United States get trade deals done with major partners, including China, Mexico, and Canada, in the coming months. CN operates roughly 20,000 route miles of tracks that cross Canada from the Pacific to the Atlantic and down through the United States to the Gulf Coast.
Recession fears have been the main story in 2025. If tariffs remain in place for too long and consumers stop spending due to higher inflation and job insecurity, the United States and Canada could slide into an extended economic downturn. In that scenario, demand for CN’s services would likely decline.
In 2024, the pullback through most of the year occurred as a result of labour disputes and wildfires. CN, along with the ports it serves, saw operations get impacted by striking workers. This delayed shipments and forced some customers to find alternative options. In addition, wildfires in Alberta disrupted cargo flows. The combination of labour issues and wildfires resulted in higher costs and reduced efficiency across the network. CN saw minimal growth in revenue in 2024, and profits dropped 5% compared to 2023. That’s why the stock underperformed the TSX last year.
Looking ahead, contrarian investors might want to take advantage of the slump. CN is providing guidance for adjusted earnings growth of 10% to 15% in 2025. The board raised the dividend for the 25th consecutive year, and CN is buying back up to 20 million shares of its common stock.
Recession risks are real, but quick resolutions on trade deals could send the stock much higher.
Telus
Telus (TSX:T) is another contrarian pick right now. The stock trades near $22 per share compared to $34 three years ago. High interest rates caused most of the pullback, but Telus also had issues with declining revenue at its Telus Digital (formerly Telus International) subsidiary and fought an aggressive price war last year with its competitors for mobile and internet customers. Those challenges are still in place, although interest rates are down from the 2024 highs, and it looks like the communications companies are all raising prices again to rebuild margins and profits.
Telus increased the dividend for 2025, extending a long streak of dividend hikes. Most of the bad news should be priced into the stock at this point. Investors who buy Telus at the current level can get a dividend yield of 7.5%.
The bottom line on top TSX stocks
CN and Telus are good companies that trade at reasonable prices and have long track records of dividend growth. If you have some cash to put to work, these stocks deserve to be on your radar.
