Canadian equities are still flying under the radar. I’d argue that’s probably going to be the case moving forward, despite the strong earnings momentum underpinning some of the best Canadian stocks in the market.
And with interest rates likely to continue to trend lower, particularly in the Canadian market, the TSX is a special place for investors to search for undervalued opportunities right now.
With that in mind, here are two of my top picks for those seeking meaningful long-term total returns (and valuations that don’t make one’s eyes water).
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Intact Financial
Property and casualty insurance giant Intact Financial (TSX: IFC) is one of the top options for long-term investors in this market, in my view.
Given the company’s reasonable valuation relative to U.S. peers and a compelling dividend yield, this is a market where patient buyers can let fundamentals do the heavy lifting.
Intact is a property and casualty insurance leader that’s executed through every part of the cycle. The company has posted consistent underwriting profits, with a long history of sub‑100% combined ratios that speak to disciplined risk management and pricing power.
Scale from its Canadian and international platforms supports stable mid‑single‑digit premium growth. That’s while steady rate increases and prudent reserving underpin growing book value per share. Intact’s balance sheet remains strong, supporting a growing dividend that has increased regularly, reflecting confidence in future cash flows.
A valuation that couldn’t be more attractive
I think the key aspect of finding true value stocks is that the relatively low multiple the market is assigning a given company needs to come with some sort of big caveat. In the case of Intact Financial, this company’s trailing and forward price-to-earnings multiple around 13 times is screaming value.
That’s because this is a company with a solid track record of earnings resilience and capital allocation. Thus, in my view, a premium multiple to the market may be warranted in this case, particularly for investors seeking durable total returns.
With a dividend yield of 2.4%, plenty of free cash flow generation, and strong underlying fundamentals, I think the near-20% dip we’ve seen in IFC stock over the course of the past 12 months makes this a solid buying opportunity here. The insurance business has been under some pressure from the market, given the composition of assets held on these companies’ balance sheets (ahem, private credit). As far as I can tell, Intact has steered clear of many of the key issues assuaging this sector.
In my view, this is a stock investors would do well to ignore the noise on and consider legging into at current levels. I am.
