There’s never a bad time for investors to seek out truly undervalued stocks to buy for the long term. Indeed, the Canadian stock market has been on a tear this year. However, despite this growth, I’d argue there are far more value opportunities in this market for those looking to see continued upside for years to come.
At a certain point, when too much forward growth gets priced in, it’s possible to have a “lost decade,” or something equivalent. We’ve seen that in the past. But given these companies’ current multiples, I’d argue they’re poised for much more upside ahead.
Let’s dive in!
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Toronto-Dominion Bank
In terms of top Canadian banks I think long-term investors should consider from a valuation standpoint, Toronto-Dominion Bank (TSX: TD) stands out to me as an easy top pick.
Trading at just 11 times trailing earnings despite strong top and bottom line growth in recent quarters, TD stock is one I think could have among the most upside of its Big 5 peers in the Canadian financials sector. With a booming international business buoyed by a retail banking footprint in the U.S. that’s larger than its domestic business, TD is one company I think long-term investors can bank on for strong total returns over the long haul.
Cenovus Energy
A mid-cap energy company I’ve long thought is among the most undervalued in its sector, Cenovus Energy (TSX: CVE) is a top undervalued name I think is worth considering right now.
Shares of Cenovus have been on a tear over the course of the past five years, surging more than 175% over this timeframe. Despite this, the stock trades at just 14 times earnings and comes with a dividend yield of more than 3.5%.
For those thinking long term and looking to add a bit more exposure to the energy sector as we kick off a new year, this is a no-brainer pick in my books.
Barrick Mining
A top Canadian gold miner, Barrick Mining (TSX: ABX) is one stock many investors would rightly think should trade at a relatively high multiple, at least historically.
That’s because the price of gold has absolutely skyrocketed to historic highs, and appears poised to continue higher. With these sky-high prices for gold (Barrick’s core output), this is a stock that should have meaningful earnings and cash flow growth in the quarters to come. That said, at less than 15 times forward earnings, I think this is a stock that’s a steal for those looking to bet on the precious metals rally we’ve seen continuing.
Air Canada
This last pick is a bit more speculative, but I think Air Canada’s (TSX: AC) valuation really does position this company as an undervalued stock that investors should at least look at.
Most of Air Canada’s rock-bottom forward price-earnings multiple of just 8 times has come from a slumping stock price, as investors can see above. That said, I’d argue that Air Canada is right around the mid-point of its recent range, and is well off of its pre-pandemic high (when the stock hit $50 per share).
I’m not suggesting that $50 is in most investors’ future, at least over the near term. But as Canada’s preeminent airline and a truly international player in this regard, this is a stock I think investors may want to consider if it dips back below the $15 level. This is an easy watch list addition, in my view.
