Despite uncertainty over the trade war’s impact on global growth, Canadian equities have remained on an upward trajectory, with the S&P/TSX Composite Index gaining 18.6%. Falling interest rates and healthy quarterly performances have boosted the equity markets higher.
However, the following two Canadian stocks have underperformed the broader equity markets this year. Given their healthier growth prospects and discounted stock prices, I believe the following two Canadian stocks offer attractive buying opportunities at these levels.
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Waste Connections
Waste Connections (TSX: WCN) has underperformed the broader equity markets this year, with its stock price falling around 2.7% year to date. Decline in the values of recycled commodities and concerns over the company’s high valuation appear to have weighed on its stock price. However, the North American waste management company reported an impressive second-quarter performance, with its revenue and adjusted EPS (earnings per share) growing by 7.1% and 4%, respectively. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin expanded by 10 basis points to 32.7%.
Moreover, the company has also made a series of acquisitions this year (as of July 23), which could contribute US$200 million to its annualized revenue. The company’s solid financial footing and steady cash flows position it well to carry out additional acquisitions in the latter half of this year. Having invested US$497.8 million in the first two quarters, the company is on track to make a capital investment of US$1.20 billion–US$1.25 billion this year. Within its investment plan, the company has set aside US$100–US$150 million for renewable natural gas projects.
Additionally, WCN is advancing technology adoption by incorporating robotics and optical sorters in its recycling facilities and leveraging artificial intelligence for commercial overage charge opportunities and price retention tools. It has also implemented AI-based e-learning modules and AI-powered camera telematics across its fleet to enhance employee safety. Combined with stronger employee engagement, these initiatives have reduced voluntary turnover and open positions, supporting higher operating margins. Given the essential nature of its business and strong growth outlook, I believe investors should begin accumulating the stock to earn attractive returns over the next three years.
Savaria
Another underperforming Canadian stock with potential to deliver superior returns is Savaira (TSX: SIS), which offers accessibility solutions to people with physical challenges. Meanwhile, the company had reported a healthy second-quarter performance last month, with its adjusted EPS growing by 26.1% to $0.29. Along with top-line growth, the company’s efforts in improving efficiency in procurement, pricing, and operations through its “Savaria One” initiative contributed to its adjusted EPS growth. The company’s adjusted EBITDA margin also improved from 19% in the previous year’s quarter to 20.6%.
Moreover, the demand for Savaria’s products and services could rise amid a growing aging population. At the same time, the company is working on product innovation, capacity expansion, operational efficiency gains, and cost reduction through streamlined procurement. It has also initiated the second stage of its “Savaria One” strategy, which would outline its strategy for the next three years. With its net debt-to-adjusted EBITDA ratio improving from 1.63 at the end of 2024 to 1.34 in the second quarter, the company is well-positioned to fund its growth initiatives.
Meanwhile, Savaria’s management projects its 2025 revenue to come around $925 million, representing a 6.6% increase from the previous year. Additionally, management expects its adjusted EBITDA margin to improve from 18.6% in 2024 to approximately 20%. Despite its healthy growth prospects, the company currently trades at 17.1 times analysts’ projected earnings for the next four quarters. Also, it offers a monthly dividend payout of $0.0467/share, translating into a forward dividend yield of 2.72%.
