2 Undervalued Canadian Stocks Ready to Explode Higher

Improving business trends and long-term growth initiatives give these two undervalued Canadian stocks plenty of recovery potential.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published September 1, 4:30 pm EDT

When I hunt for undervalued stocks, I don’t necessarily look for a low share price alone. Instead, I try to understand why the market has turned pessimistic and, more importantly, what could cause that pessimism to fade. That’s why I believe the catalyst matters just as much as the discount.

Two top Canadian stocks currently fit that description really well right now. Their stocks have suffered big declines lately, but both businesses are taking steps that could produce significantly better results over time. Let’s take a closer look at these beaten-down stocks that could be ready for a powerful rebound.

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor. — Source: Getty Images

OpenText stock

The first beaten-down Canadian stock worth a closer look is OpenText (TSX: OTEX), especially after its latest results showed encouraging progress despite its weak share-price performance.

In short, this Waterloo-based information management software firm helps organizations manage, secure, and use data through cloud, cybersecurity, analytics, and artificial intelligence (AI) solutions. After falling nearly 24% over the last year, OTEX stock now trades at $34.58 per share with a market cap of $8.4 billion. Interestingly, this tech stock also rewards investors with attractive dividends, with its yield currently hovering close to 4.5%.

In the fourth quarter of its fiscal year 2026 (ended in June), OpenText’s revenue rose 2.9% year-over-year (YoY) to US$1.4 billion. Its cloud revenue climbed 6% from a year ago to US$503 million, while enterprise cloud bookings jumped 24.1% to US$295 million.

Its profitability improved even faster as the tech firm’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) surged 14.1% YoY to US$507 million, with its margin reaching 37.6%.

Notably, OpenText is increasing investment in cloud, security, and AI while expanding its sales capacity and partner ecosystem. The company is also focused on reducing debt and has renewed a share repurchase plan. These positive factors give me strong reasons to believe that this undervalued Canadian stock could see a strong rebound soon.

ATS stock

For investors willing to take on more turnaround risk in exchange for stronger upside potential, ATS (TSX: ATS) could be another great beaten-down stock worth watching.

This Cambridge-based business provides advanced automation systems and services to customers across life sciences, industrial and consumer markets, food and beverage, and energy. After declining 30% over the last year, ATS stock currently trades at $26.72 per share and has a market cap of $2.6 billion.

Its latest results explain some of that weakness. In the first quarter of its fiscal year 2027 (ended in June), ATS’s sales fell 5.8% YoY to $694 million. The decline mainly reflected a 6.4% drop in organic revenue and lower construction-contract revenue as ATS entered the quarter with a smaller order backlog.

Still, there were some encouraging signs as ATS’s services revenue grew 11.4% from a year ago, while energy revenue surged 68.9% as a higher opening backlog supported nuclear project execution. The business also finished the quarter with about $1.9 billion in order backlog.

Interestingly, ATS has launched an 18-month Fixed Cost Transformation Program designed to simplify operations, lower fixed costs, and improve returns. Its initial European phase is expected to reduce annual costs by about $20 million. The broader program is expected to deliver roughly half the margin expansion required for ATS to reach its long-term 15% adjusted earnings from operations margin target.

With ATS shares currently trading near the bottom of their 52-week range, successful cost reductions and stronger order momentum could give its stock plenty of room to recover.