Investing when markets are falling is no easy feat. It takes guts, patience, and a little contrarian spirit. But it’s also where serious long-term gains are made. While many investors flee, those who stay, or better yet, buy, can pick up valuable assets at a discount. In Canada, two value stocks in particular are starting to look appealing amid ongoing volatility: National Bank of Canada (TSX: NA) and Baytex Energy (TSX: BTE).
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National Bank
Let’s start with National Bank. This smaller Big Six bank often flies under the radar, but its fundamentals are hard to ignore. While other banks are struggling under the weight of slower loan growth and rising defaults, National Bank is holding its own. In its most recent quarter, the dividend stock posted revenue of $2.72 billion and net income of $826 million.
Earnings per share (EPS) hit $2.31, compared to $2.38 a year earlier. While down slightly, the dip came as provisions for credit losses increased to $147 million, up from $85 million. But even with that uptick, National Bank maintained a strong return on equity of 16.6% and a common equity tier-one ratio of 13.5%. These are signs of a well-capitalized, well-managed bank.
The cherry on top is the dividend. At writing, National Bank pays $4.72 per share annually, translating to a yield of about 3.36%. With a conservative payout ratio and consistent dividend growth, it’s a reliable income source. For value seekers, the bank is trading at 13.45 times earnings, further demonstrating its value. That’s a compelling entry point, especially when you consider the long-term stability of the Canadian banking sector, even in rough patches.
Baytex
Now, onto Baytex Energy. Energy stocks tend to get hit hard when recession fears rise, and Baytex is no exception. But while the dividend stock has seen pressure lately, the business is far from broken. In fact, it’s quietly pumping out cash. Baytex reported adjusted funds flow of $464 million in its first quarter of 2025, with net income coming in at $70 million. The dividend stock generated free cash flow of $53 million, even in a weaker oil price environment. It’s also continuing to return cash to shareholders, with $30 million distributed through buybacks and dividends in the quarter.
Production averaged 144,194 boe/day, with 84% from oil and natural gas liquids. This diverse base, including assets in Alberta and Texas, offers flexibility and scale. While oil prices remain volatile, Baytex hedged about 45% of its oil exposure for the rest of the year, helping to stabilize revenue.
And while the dividend might not jump off the page at $0.09 annually, it’s sustainable, and there’s potential for growth. The real value lies in the dividend stock’s incredibly low valuation. At writing, Baytex trades at 6.4 times earnings. Speaking of the balance sheet, Baytex has made meaningful progress. Net debt now sits at $2.39 billion, down about $250 million year over year. The dividend stock aims to allocate 100% of its free cash flow to debt repayment until conditions improve. That’s a smart, disciplined approach in today’s macro environment.
Bottom line
When you put these two stocks together, you have a bank with steady income and a cyclical oil stock with high upside. Buying value doesn’t always feel good in the moment. But if you can look past the short-term noise, National Bank and Baytex Energy offer compelling opportunities.
When markets fall, emotions rise. That’s when good stocks start going on sale. Instead of panicking, long-term investors can lean into quality. National Bank and Baytex Energy fit the bill. They’re not without risk, but the upside could be well worth it.
