The Canadian equity markets have experienced strong buying momentum this year, supported by improving investor confidence driven by better corporate earnings and recent interest rate cuts. The S&P/TSX Composite Index has climbed 21.3% year-to-date. While this rally has pushed valuations for many Canadian companies higher, I believe the following two stocks remain undervalued and could be excellent additions to investors’ Tax-Free Savings Account (TFSA).
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goeasy
goeasy (TSX: GSY) offers leasing and lending solutions through its easyhome, easyfinancial, and LendCare brands, catering specifically to subprime customers. The Mississauga-based company has faced pressure recently following a report by Jehoshaphat Research, which accused goeasy of employing aggressive and misleading accounting practices to mask credit losses.
Meanwhile, goeasy has refuted these allegations, terming the report as false and malicious. However, the report appears to have made investors skeptical, dragging the company’s stock down. Since the publication of this report, the company has lost over 21% of its stock value, dragging its NTM (next 12 months) price-to-earnings multiple down to 7.9.
Notably, goeasy expanded its loan portfolio in the first half of this year, originating $1.6 billion in new loans, bringing its total portfolio to $5.1 billion. Despite this growth, the subprime lender has captured just 2% of the Canadian subprime lending market. Therefore, it has substantial scope for expansion. With its broader product offerings, strategic initiatives, and expanded market reach, the company is well-positioned to increase its market share.
Meanwhile, goeasy’s management projects its loan portfolio to reach $7.35–$7.75 billion by the end of 2027, with the midpoint representing a 48% increase from its second-quarter levels. Amid the expansion of its loan portfolio, its topline could grow at an annualized rate of 11.4%, while its operating margin could expand to 43% in 2027. Additionally, the company has consistently rewarded shareholders by increasing its dividend at an annualized rate of 29.5% over the past 11 years and currently offers a forward dividend yield of 3.7%. Considering all these factors, I believe goeasy would be an excellent buy right now.
Canadian Natural Resources
Another undervalued stock that I believe would be an astute addition to your TFSA is Canadian Natural Resources (TSX: CNQ), an oil and natural gas producer with assets located in Western Canada, Offshore Africa, and the North Sea. Amid easing oil and natural gas prices, the company has underperformed the broader equity markets this year. Besides, its valuation looks attractive, with NTM price-to-sales and NTM price-to-earnings multiples of 2.4 and 13, respectively.
Despite the accelerating shift toward clean energy, OPEC (the Organization of the Petroleum Exporting Countries) expects oil and natural gas to still account for more than half of the global energy mix in 2050, only slightly lower than the roughly 56% share in 2024. Amid healthy demand, the energy producer continues to strengthen its production capabilities by investing $6.1 billion this year. The company plans to drill 182 net primary heavy crude oil multilateral wells this year. In addition to its organic growth initiatives, it is pursuing strategic acquisitions to further enhance its production capabilities. Given its lower breakeven point, the increased production could boost its top and bottom lines.
Moreover, CNQ has a strong history of rewarding shareholders, increasing its dividend for 25 straight years at an impressive 21% annualized growth rate. It currently provides an attractive forward yield of 5.5%. Considering all these factors, I believe CNQ would be an ideal addition to your TFSA.
