Investors looking to put some capital to work in the Canadian stock market may notice a few things. For one, this is an index that’s pretty resource and financials-heavy. And while there are pockets of opportunity elsewhere, investors broadly look at this market for exposure to these sectors.
That’s what makes looking for value so interesting in the Canadian market. There’s a range of companies I’d consider to be overlooked that provide excellent value for those who know where to look.
For those seeking defensive exposure to companies with excellent valuations and growth prospects over the long term, here are two top areas I’d suggest looking at.
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Utilities
Much like many other markets, the Canadian utilities sector is highly regulated and one with a relatively small number of players. What this has meant is that companies operating in this sector tend to produce outsized cash flows over time as they raise prices in accordance with regulated rate increases while also improving margins over time due to economies of scale and efficiency initiatives.
One of the best operators in the Canadian market continues to be Fortis (TSX:FTS), a dividend juggernaut I continue to pound the table on. Relying on its rock-solid underlying business model, Fortis has now raised its dividend each and every year for 51 consecutive years. That’s a track record that’s hard to beat and one which I expect will continue for as long as the company stays in business.
The company’s recent financial results paint a picture of a well-oiled cash flow machine.
Energy Sector
Aside from other key commodities and mining operations, the Canadian market is well-known for its range of energy producers operating across the country. Most notable operators exist in Western Canada, producing the heavy oil from Alberta’s oil sands, which is mainly shipped to Midwestern refiners in the U.S. for the country’s fuel needs.
Within the Canadian energy sector, Suncor (TSX:SU) remains a top pick of mine for a variety of reasons. The company’s status as a top-tier domestic producer positions the company well for long-term growth, assuming the U.S. still needs a source of low-cost energy. In terms of market share, Suncor continues to be a leader in delivering vast quantities of energy to our trading partners, and I don’t see that changing anytime soon.
I think that over the long term, we’ll see a simmering down of rhetoric from both sides of the border. The need for energy independence and a steady and consistent supply of energy within North America will continue for a very long time. As the premier Canadian producer in this right, I think Suncor is well-positioned to see continued share price appreciation.
The company’s stock chart shown above highlights just how valuable investors see this company as a long-term player in this right. I’m of the view that Suncor’s 4.5% dividend yield and price-earnings ratio of just 10 times are simply too attractive to ignore right now. For investors looking to ignore the noise, this is a stock I think is worth considering.
