Those who may be concerned about rising valuations in the stock market may be on the lookout for some of the most overlooked and undervalued stocks to buy right now. I’m certainly one such investor in this boat. The fact that the S&P is trading around 25 times forward earnings – and at nosebleed levels historically on a price/sales basis – has me worried.
The good news is that the Canadian stock market provides plenty of under-the-radar value opportunities for investors to grab. Here are three of my top ideas in this market right now and why they may outperform over the long term.
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Air Canada
Air Canada (TSX: AC) remains Canada’s largest airline and is integral to the Canadian industrial sector.
The airline’s stock chart looks like a heartbeat, with surges and crashes all over the place. It’s the peaks and valleys of this graph that may give some investors sea sickness, and encourage investors looking for stability and up-and-to-the-right moves to look at other companies.
That said, with AC stock now trading near the mid-point of its five-year range, I’m of the view that the stock could be worth a look here. Air Canada’s balance sheet and fundamentals remain strong. And notably, this stock trades at a rock-bottom level of just 6 times forward earnings.
It’s hard to find a company that’s this cheap in today’s market. Those looking for deep value can find it in Air Canada (assuming we don’t have another 9/11 or major macro shock around the corner).
Whitecap Resources
One of the most undervalued oil and gas players in the Canadian market has to be Whitecap Resources (TSX: WCP).
Shares of the Canadian oil and gas company are now trading around their highest levels of the past five years, as energy prices remain stable.
Investors appear to like the company’s strong balance sheet, its positioning in the market, and valuation relative to its peers. Indeed, at a valuation of just 7 times trailing earnings, there’s an argument to be made that this is a stock that could be a take-private or takeover target.
That’s actually a primary factor that would be key to my investment thesis in Whitecap right now. I don’t see such a move as being imminent, but anything’s possible. And as larger companies look for greater scale and diversification, I do think WCP stock could see meaningful upside if M&A activity in the energy sector picks up.
Manulife Financial
Last, but certainly not least on this list of Canadian value stocks to consider right now, is Manulife (TSX: MFC).
Shares of the life insurance and wealth management giant have been steadily moving higher, as investors look for beaten-down stocks to invest in at this point in the cycle. To a large extent, insurance giants like Manulife got unfairly hit during the pandemic due to their portfolio construction. Going heavily into long bonds with ultra-low yields at that time pressured their earnings.
However, as Manulife rotates into higher-yielding Treasurys and other ultra-safe long-term assets, many investors are now viewing such stocks as bond-like proxies.
Personally, I’m bullish on fixed income right now, and think insurance companies like Manulife trading at just 10 times forward earnings are an excellent way to trade this trend.
