At first glance, there don’t seem to be too many stocks that are undervalued in today’s market. I mean, the TSX Index is up more than 60% in the last three years and is trading at all-time highs. Yet, if we follow the markets long enough, we come to realize that there’s always an undervalued stock somewhere. In this article, I’ll discuss two undervalued Canadian stocks that I believe are being mispriced by the market.
Value investing: Finding undervalued stocks
Value investing is an investment strategy that relies on finding stocks that are trading below their actual true value. It’s an appealing strategy because if done right, investors can buy stocks at a discount. Sometimes these discounts are deep. The rewards can be very meaningful, but value investing requires conviction, guts, and most of all, patience.
But, of course, like with anything, there is always risk. The risk here being that sometimes what we may think is mispriced turns out to be priced right and is actually a value trap. In a well-diversified portfolio, however, these measured risks should prove to be worth it over time.
BCE
BCE (TSX:BCE) is one of Canada’s leading telecom companies. It’s also one of Canada’s biggest disappointments in the last few years. In fact, what was once considered one of the safest stocks on the TSX fell a shocking 47% in the last three years. So, the question is, is BCE stock an undervalued Canadian stock to buy or one to stay away from? Let’s look into this.
The telecom giant has a lot going for it. The first thing is that BCE’s industry is the very defensive telecommunications industry. Simply put, consumers “need” BCE’s products and services. This is one of the last expenditures to be cut in hard times, and it’s extremely sticky, with recurring revenues and cash flows.
But as you know, BCE and its stock fell into some hard times. This all came to a head in May 2025, when BCE slashed its dividend by 56%. Today, after some very difficult quarters of declining revenue, profitability and earnings, things are looking up. The company has taken some real steps to shore up its balance sheet, de-lever, and drive growth once again. These steps have included lay-offs, divestitures, and pursuing different growth paths.
In BCE’s third quarter, the company posted a 1.3% increase in revenue, a 5.3% increase in adjusted earnings per share (EPS) and operating cash flow of $1.9 billion, which increased 3.9% versus last year. BCE stock is trading at undervalued prices today: 13 times this year’s expected earnings, a 5.3% yield, and 1.6 times book value. The dividend payout ratio has stabilized as has the stock.
CGI
CGI Inc. (TSX:GIB.A) is one of Canada’s leading information technology giants. And it’s another undervalued Canadian stock to buy now. It’s currently trading at less than 15 times earnings. But considering CGI’s long history of earnings growth and shareholder value creation, CGI stock is undervalued in my view.
As you can see from CGI’s stock price graph below, the stock has been a steady performer over many years. This reflects the company’s steady and reliable growth over the years. The company has truly transformed itself into a global leader, with diversified operations across geography and industry.
It’s the kind of diversification that typically should command premium multiples. Yet, CGI has been consistently underappreciated, in my view. In the company latest quarter, the fourth quarter of 2025, revenue increased 9.7% to $4.01 billion. Also, adjusted EPS increased 10.9% versus the prior year and operating cash flow came in at $663 million or 16.5% of revenue.
It’s a very cash generating business that is looking forward to a bright future. This is evidenced in CGI’s book-to-bill ratio, which came in at 119.2% and its backlog of $31.45 billion, or two times revenue.
The bottom line
The undervalued Canadian stocks discussed in this article have strong risk/reward profiles as well as a strong possibility of being revalued at higher multiples that better reflect their true value.
