In the world of Canadian investing, there are a number of top undervalued stocks I continue to come back to. However, in this piece, I thought I’d explore two companies that many investors may not necessarily consider to be true value plays, given their industries.
Now, in alignment with industry multiples, both these particular stocks are near the mid-point of the valuation range. That said, for those thinking long term, here’s why I think these stocks present a true value argument right now and are worth buying before we head into Q1.
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Canadian Apartments REIT
Canadian Apartment REIT (TSX: CAR.UN), or CAP REIT for short, is one of my top picks in the real estate investment trust (REIT) world.
This firm allows investors to take advantage of what I see as mispricing in the world of real estate. After all, this is one of the country’s leading residential landlords, with significant supply in key landlocked and supply-constrained markets such as Vancouver, Toronto, and Montreal.
On a price-to-AFFO basis, CAP REIT is trading at levels we haven’t seen in more than a decade. That’s despite structurally tight rental markets, rising replacement costs, and essentially no easy way to add new supply in core urban centres. You’re getting a business with embedded inflation protection. Rents reset over time, while the debt is largely fixed. And these rents are currently being discounted at a rate typically reserved for troubled operators, not one of the strongest residential platforms in the country.
Investors today can lock in an attractive distribution while they wait, with the real upside coming if and when rates start to normalize and cap rates compress. If that plays out, unit prices don’t just grind higher. They can re-rate sharply as the market remembers that essential shelter demand doesn’t vanish because headlines turn negative. For investors with a three-to-five-year lens, buying a best‑in‑class landlord when everyone is still anchored to rate fears looks like a textbook contrarian value move.
Bank of Nova Scotia
Another company that goes by a moniker (in this case, Scotiabank), Bank of Nova Scotia (TSX: BNS) is another top value pick on my radar right now.
Indeed, Canadian bank stocks aren’t often “cheap,” but every so often sentiment overshoots. And that’s when patient investors tend to make their best money.
Bank of Nova Scotia (BNS) fits that bill today. The stock trades roughly 10% below its recent 52-week high, even as the bank continues to offer one of the more generous dividends among the Big Six. You’re being paid a hefty yield in the mid-4% range to wait for a turnaround in both earnings momentum and investor perception.
Thus, for investors seeking a mix of dividend yield and value, this is a top pick of mine right now. When we ultimately see the current choppy conditions improve, I think BNS stock is likely to be one big beneficiary of a move toward safety. Right now, Canadian bank stocks appear much safer than their global peers, so I wouldn’t be surprised to see a flood of investor capital move toward this space.
