The good news for those searching for truly undervalued stocks to buy in this market is that the TSX is chock full of such opportunities. Despite recent surges, in part driven by global demand for non-U.S. stocks and outsized demand for commodities-related names, a number of top TSX stocks continue to outperform.
Here are a few takeaways I have about Canadian valuations more broadly in the equity space, as well as a couple of opportunities I think investors may want to consider in the value bucket right now.
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What to know about valuations right now
After a multi‑year stretch where AI and U.S. tech dominated the headlines, the pendulum has swung back toward cash flow, dividends, and balance‑sheet strength. Lower interest rates in Canada are narrowing the gap between what you earn on GICs and what you can earn owning high‑quality businesses for the long term. That’s typically when value starts to outperform.
At the index level, Canada is still heavily tilted to financials, energy, utilities, and materials. Many of these companies trade at single‑digit to low‑teens earnings multiples, even as their earnings and dividends grind higher. That combination of modest valuation, decent growth, and healthy yield is what long‑term value investors should seek out in 2026.
What to consider on the investment front in 2026
Broadly, I think investors need to think about owning stocks that fulfill three main criteria.
First, these companies should have solid balance sheets with net debt that’s manageable. Cash flow stability is also important, with companies with regulated or contracted revenue better supported than those hampered by low switching costs. Additionally, providing shareholder returns is key, as this is a paramount concern for those seeking relative stability in this current market.
One stock that fits the bill in all three areas is Manulife Financial (TSX:MFC). The company’s solid core insurance and wealth management businesses spew off cash. This is a company with a rock-solid balance sheet and plenty of growth prospects, and it’s highly defensive with a valuation that doesn’t match right now.
On the dividend growth front (that capital return I was touching on), there’s no better company in the market right now, in my view, than Fortis (TSX:FTS).
Fortis has turned out to be a perennial compounder on this front, with the regulated utility giant providing incredible dividend growth for more than five consecutive decades. Supported by some of the most robust regulated cash flows in its industry, with very robust growth prospects driven by AI and other electrification trends, this is a top undervalued stock to buy right now in my view.
