With the Canadian stock market hovering near all-time highs, the hunt for true value has become increasingly difficult. Many investors are hesitant to deploy new capital in what seems like an overheated market. However, if you dig beneath the surface, you’ll still find select opportunities — especially in high-quality companies that the market has yet to fully reward.
If I had $7,000 to invest today, I’d split it evenly between two stocks that remain undervalued relative to their long-term potential: Manulife Financial (TSX:MFC) and Canadian Natural Resources (TSX:CNQ). Both companies are industry leaders with strong fundamentals, attractive dividends, and solid track records of delivering shareholder value.
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Manulife: A global giant with growth still ahead
Manulife is a leading international financial services provider, offering insurance, wealth and asset management, and retirement solutions to over 36 million customers across the globe. Its revenue streams are well-diversified, with core earnings in 2024 coming 40% from Asia, 21% from Canada, 20% from the United States, and 26% from global wealth management.
Even after a 25% rise over the past year and an 88% gain over three years, the stock still trades at a discount to its intrinsic value. It has a lower price-to-earnings (P/E) ratio than many of its peers, offering room for valuation expansion. Analysts also expect its earnings to continue climbing steadily, potentially driving further stock appreciation.
Manulife’s dividend yield of nearly 4% provides a reliable income stream while investors wait for price appreciation. Its dividend payout ratio is a modest 56%, suggesting sustainability and room for future increases. Bolstered by an investment-grade credit rating of A from S&P, this is a blue-chip name that’s positioned for long-term growth.
Over the past decade, Manulife has delivered a strong annualized return of 11.4%. That’s an impressive track record for a stock that’s still considered undervalued today.
Canadian Natural Resources: A dividend powerhouse in energy
Canadian Natural Resources is one of Canada’s top oil and gas producers, with a diversified portfolio that includes oil sands, thermal in situ, natural gas, and conventional oil. Due to concerns around global trade and commodity price volatility, CNQ is trading at an attractive 15% discount to analysts’ consensus price targets. That gives the stock a near-term upside potential of around 18%.
But the real gem here is its dividend. At current prices, CNQ offers a robust yield of 5.4%, underpinned by strong free cash flow and disciplined capital allocation. The company has increased its dividend for about 24 consecutive years, with a 10-year compound annual growth rate of 17%. Its most recent hike was 12% year over year — an impressive feat in a sector that’s cyclical.
CNQ’s trailing-12-month payout ratio was just 49% of free cash flow and 60% of net income, indicating that its generous dividend is well-covered. With an investment-grade credit rating of BBB-, Canadian Natural Resources also brings balance-sheet strength to the table.
Its 10-year annualized return stands at 13.9%, making it potentially one of the best large North American energy stocks to own for the long haul.
The Foolish investor takeaway
If you’re looking to put $7,000 to work in this elevated market, splitting it evenly between Manulife and Canadian Natural Resources offers a smart mix of income, value, and growth potential. Together, these two stocks have delivered an average 10-year annual return of 12.7%, driven in large part by their reliable dividends.
They may not be flashy, but they are resilient — and right now, still priced below where they deserve to be.
