The Canadian stock market has been on fire, delivering total returns of roughly 31% over the past year. Gains have been fueled largely by a surge in the materials sector — especially gold — and a strong rebound in financials, helped by interest rate cuts from the Bank of Canada. When compared with the market’s 10-year average annual return of about 13.8%, today’s environment clearly qualifies as hot.
While strong momentum can be exciting, it also raises the stakes for investors. Elevated markets often reward patience and selectivity more than broad-based buying.
As always, only long-term capital that you won’t need for years should be invested in stocks, giving you the time and flexibility to ride out inevitable volatility.
In a market like this, focusing on solid businesses trading below their intrinsic value can help protect — and grow — your hard-earned savings. Below are two undervalued Canadian stocks that still offer compelling long-term upside despite the market’s recent strength.
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A defensive compounder trading at a discount
FirstService (TSX: FSV) is a high-quality real estate services company that appears mispriced in today’s market. While the broader index surged, FirstService shares declined roughly 14% over the past year. Despite this decline, the company has delivered impressive 10-year annualized returns of about 17%.
At around $225 per share at the time of writing, the stock trades at approximately a 14% discount to its long-term normal price-to-earnings (P/E) ratio, suggesting near-term upside potential of about 16%. Given FirstService’s defensive, recurring-revenue business model and strong free cash flow generation, that valuation gap is mesmerizing.
The company has consistently grown through a mix of organic expansion and disciplined tuck-under acquisitions in a highly fragmented market. This proven strategy justifies its premium valuation, with a long-term normal P/E of roughly 32.8. Supporting the bull case further, analyst consensus price targets imply a discount of about 22%, translating into potential near-term upside of close to 28%.
FirstService is also a Canadian Dividend Knight, having increased its dividend for more than a decade. Over the past 10 years, its dividend has grown at an annualized rate of 13.9%, and its most recent hike in February was 10%. For long-term investors, the stock looks like a classic buy-the-dip opportunity.
A turnaround play with a big yield
TELUS (TSX: T) represents a different kind of opportunity. After hitting multi-year lows in December 2025, the telecom giant has rebounded sharply, suggesting the bottom may already be in. Even so, the stock remains well below its historical levels, leaving room for further upside as its turnaround continues.
Analysts currently see a discount of about 12% to fair value, implying near-term upside of more than 13%. TELUS has been actively improving efficiency and cutting costs by reducing its workforce and executing digital transformation initiatives. It could also strengthen its balance sheet through potential non-core asset sales, which could further improve investor confidence.
One of TELUS’s most compelling features remains its dividend. At recent prices, the stock yields nearly 8.9%. While management has frozen dividend growth for now to support deleveraging efforts, the payout remains attractive for income-focused investors willing to be patient.
Investor takeaway
Even in a red-hot Canadian market, opportunities still exist for disciplined investors. FirstService offers defensive growth, strong cash flows, and reliable dividend increases at a discounted valuation, while TELUS provides turnaround potential and an unusually high yield. By staying selective and focusing on quality, long-term investors can still find undervalued Canadian stocks worth buying now.
