Aiming to Beat the Market in 2026? I’d Lean Hard on This Undervalued Stock

TD Bank (TSX:TD) looks like a deep-value dividend play after earnings.

Key Points
  • Consistently beating the market is tough, so many investors stick with low-cost index ETFs, but a continued rotation from tech/AI into Canadian value and dividend names could make it easier for TSX-focused stock pickers to outperform the S&P 500.
  • TD Bank is highlighted as a value-leaning pick even after hitting new highs, trading around 11.7x trailing P/E with a ~3.25% yield and what’s framed as improving loan-growth and dividend-growth potential after strong earnings.

It’s not easy to beat the market consistently unless, of course, you’ve loaded up on U.S. tech stocks and made the TSX Index the “market” benchmark that you were seeking to top.

With the tables turned and the TSX Index outpacing the lagging S&P 500, perhaps sticking with Canadian value stocks could be the formula to staying ahead of the S&P 500. Either way, it’s hard to consistently beat the market over the long run, which is why many passive investors opt to keep their costs (or management expense ratios) low by owning index ETFs outright.

While there’s nothing against going down the route of an index investor, I do think that it’s fun to learn about businesses and at least try to do well over time while comparing your portfolio’s performance relative to the averages.

stocks climbing green bull market

Source: Getty Images

Beating the S&P might not be so hard if the value rotation continues

Indeed, many Canadians already hold a lot of U.S. stocks in addition to Canadian stocks. And while it can be a good idea to compare against both the S&P 500 and the TSX Index, I’d argue that it’s the latter index that will be tougher to beat, especially if this rotation out of AI and tech (can you believe there’s now a market for the non-AI stocks?) has only just begun.

Perhaps beating the S&P 500 might come easier if you’re willing to pick stocks abroad, not just in Canada, but perhaps into international markets as well, especially those with lower valuation multiples.

Any way you look at it, I think diversifying is key to doing well, and while it’s impossible to stay ahead of the market over time, I do think that insisting on fat margins of safety could be the way to go as the punishment for buying stocks (think the hyper-growth names) at any price becomes more severe. The S&P 500 has pretty much gone flat so far this year, but there have been a considerable number of names that have corrected and suffered bear market implosions.

Sure, the S&P hasn’t even suffered a 3% drawdown at this point, but if you’re heavy in the consensus trade as well as the growthier plays, you’re probably having a far worse year. In 2026, “boring” value and dividend plays have crushed the market, as investors rotated towards steadier plays. It’s impossible to tell when growth stocks will heat up after this lengthy cooldown. In my view, it’s hard to go wrong with cheap-looking stocks in this shift to value. But do be careful because value may be the new expensive if the rotation gets extreme.

TD stock: A bargain hiding in plain sight post-earnings

At this juncture, I like TD Bank (TSX: TD), which, despite recently breaking out to a new all-time high above $135 per share, still trades like a deep-value play with shares going for 11.7 times trailing price-to-earnings (P/E). In short, TD shares are still the cheapest of the Big Six batch, at least in my view.

And while 3.3% is the lowest it has been in a long time, I still think it’s time to view the bank as a loan growth hero with enhanced dividend growth prospects, rather than just another bank that might be on the receiving end once the upcycle reverses.

With strong Q1 earnings in the books (many peers also beat earnings), I think the banks have a free pass to break out and continue their run. TD looks most interesting, not just because it’s seemingly the cheapest, but because it has a solid growth profile relative to the risk.

Fool contributor Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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