Investing in high-quality, undervalued stocks that trade at a discount to their intrinsic value is a proven strategy for generating outsized gains. In this article, I have identified two such cheap TSX stocks you can buy right now and benefit from market-beating returns over time.
Is this Canadian stock undervalued?
Valued at a market capitalization of $10 billion, Lumine Group (TSXV:LMN) is a Canadian stock that is currently 27% below its all-time highs. Despite its ongoing pullback, LMN stock has returned 136% to shareholders since its initial public offering in March 2023.
Founded in 2014, Lumine develops, installs, and customizes software products. It also provides related professional and support services. Lumine Group reported robust second-quarter results, demonstrating the company’s ability to convert revenue growth into substantial operating leverage and cash flow generation.
In Q2 2025, Lumine reported revenue of $184 million, representing a 13% year-over-year increase. In the first six months of 2025, it grew sales by 19% to $362.6 million. While acquisitions were the key driver of sales, organic revenue rose by 6% in Q2.
Meanwhile, operating income grew by 71% to $62.7 million in Q2, outpacing revenue growth by a wide margin. This operating leverage enabled Lumine to report a net income of $23.6 million in the June quarter, compared to a loss of $2.2 million in the same period last year. In the first two quarters, its operating income grew by 51% to $122.2 million.
Notably, operating cash flow increased by 705% to $78.4 million, up from $9.7 million, while free cash flow expanded from $2.8 million to $72.4 million over the last 12 months.
Analysts tracking LMN stock forecast sales to rise from $668 million in 2024 to $1.8 billion in 2029. In this period, adjusted earnings are forecast to expand from $0.93 per share to $2.45 per share.
If the tech stock is priced at 25 times forward earnings, which is reasonable, it should trade at $61.25 in early 2029, indicating an upside potential of over 50% from current levels.
Is this TSX stock a good buy?
Valued at a market cap of $933 million, Magellan Aerospace (TSX:MAL) engineers and manufactures critical aerospace components, including aeroengine parts, aerostructures, landing gear systems, rocket motors, satellite platforms, and aluminum/magnesium castings.
The Canadian company serves commercial and defence aerospace markets across North America and Europe through specialized manufacturing of flight-critical components and space solutions.
Magellan generates 63.5% of revenues from commercial aerospace markets while defence contracts contribute 36.5%. This diversification helps mitigate volatility inherent in either market segment while providing exposure to civilian aviation and sustained defence spending.
Magellan recently secured significant long-term agreements that enhance revenue predictability. The amended revenue-sharing agreement with GE Aerospace expands production of F414 engine components for the Korean KF-21 aircraft program. Additionally, new contracts with Pratt & Whitney Canada extend manufacturing agreements through 2034, with production based at the company’s facility in India.
Magellan’s sole-source supplier status on key programs creates competitive moats, while long-term contract visibility supports predictable cash flows. However, aerospace industry cyclicality and program-specific risks remain considerations for investors evaluating the company’s growth trajectory and margin sustainability.
Analysts tracking MAL stock forecast sales to rise from $942 million in 2024 to $1.1 billion in 2029. In this period, adjusted earnings are forecast to expand from $0.62 per share to $1.47 per share.
If the TSX stock is priced at 25 times forward earnings, it should trade at $37 in early 2027, indicating an upside potential of over 125% from current levels.
