One of the greatest investors of all time, Warren Buffett, built his legendary fortune as a value investor. Under the mentorship of Benjamin Graham, the “father of value investing,” Buffett learned the disciplined approach of identifying and buying shares of downtrodden, large-cap stocks that were trading for less than their underlying worth. He profited handsomely when the market eventually recognized the company’s true value, leading to a turnaround and price appreciation.
In today’s fast-paced, news-driven markets, this philosophy of seeking a “dollar for 50 cents” remains a popular and often highly successful investment strategy among retail and institutional investors worldwide. Value stocks are assets, plain and simple, that the market has temporarily mispriced. If you’re interested in becoming a value investor in the Canadian stock market, which is often characterized by mature, stable companies, this guide is your roadmap to identifying quality opportunities.
What are value stocks?
Value stocks are shares of companies that appear to trade at a price lower than what their fundamentals would entail. The premise of value investing is that the market (and its participant–investors) is not always efficient or accurate in determining the true price (intrinsic value) of a stock.
This is contrary to the efficient market hypothesis (EMH), which theorizes that a company’s share price always reflects the latest information available to the public, thus making it “impossible” to beat the market. Value investors disagree with the EMH, noting that the market has historically under- or over-valued many stocks relative to their company’s true performance.
How to determine what is a value stock
Determining whether a stock is a true value opportunity (and not just a cheap stock) requires a disciplined approach that goes beyond simply looking at a low price tag. It involves analyzing a company’s financial health, management quality, and competitive position to estimate its Intrinsic Value.
Value investors typically employ the following general strategies:
| Metric | Screening Threshold | Why It Matters for Value Investors |
| Trailing Price-to-Earnings (P/E) | Under 12.00 | A low P/E ratio indicates that the stock is trading at less than twelve times its past twelve months’ earnings. This suggests the stock is undervalued on the TSX but also realistic for many cyclical stocks |
| Price-to-Sales (P/S) | Under 1.00 | With a P/S ratio under 1.00, a company’s market value is less than its total sales over the past year. This underscores potential undervaluation, demonstrating that investors are paying less than one dollar for each dollar of the company’s sales. |
| Price-to-Book (P/B) | Under 1.50 | The P/B ratio being under 1.50 means that the company is trading below its book value (net asset value). This is often a classic sign of an undervalued stock, implying that the company’s net physical and financial assets are worth more than its current market price. |
| Return on Equity (ROE) | 10% or over | An ROE exceeding 10% reveals that the company is efficiently generating strong net income for every dollar of shareholders’ equity. This points to effective management and the profitable use of capital—a quality company that happens to be cheap. |
| Net Profit Margin | 10% or over | By maintaining a net profit margin of over 10%, a company showcases its robust ability to convert a significant portion of its sales into actual profit, indicating good financial health and operational efficiency that justifies the investment. |
| Current Ratio | 1.00 or over | A current ratio of 1.00 or over indicates that a company has sufficient liquid assets to cover its short-term liabilities. This financial stability is crucial for ensuring the company can endure market fluctuations and economic downturns without facing a liquidity crunch. |
| 5-Year EPS Growth | 20% or over | A company exhibiting a five-year earnings per share (EPS) growth rate of over 20% signals strong earnings growth over time. Value investors look for this growth to ensure the “cheap” stock is not simply a declining business. |
Top Canadian value stocks
The Canadian stock market is comprised of 11 stock market sectors, and can be split into stock types based on market capitalization (micro, small, mid, and large cap) or style (value, growth, or blend). Here are some value stocks in the TSX to look for in 2026.
| Company | Description |
| Suncor Energy Inc. (TSX:SU) | Integrated energy company focused on the extraction, production, and upgrading of oil sands, as well as refining and marketing petroleum products. |
| Cargojet (TSX:CJT) | Overnight air cargo operator, providing critical logistics services with an irreplaceable national network. |
| BCE, Inc. (TSX:BCE) | Canada’s largest telecom and media provider, known for its extensive network, steady cash flow, and high dividend. |
Suncor Energy Inc.
Suncor Energy Inc. operates in the energy sector primarily in Canada, with a focus on integrated oil and gas production, refinement, and marketing. The company is a leading player in oil sands extraction and upgrading and has committed to expanding its renewable energy initiatives. Suncor’s major customers include industrial clients, aviation companies, and retail consumers at its network of fuel stations.
Over the past 12 months, Suncor Energy Inc. has shown strong financial performance. For the fiscal year ending December 31, 2024, the company reported a net income of CAD 5 billion, up from CAD 4.5 billion in the previous year. In the third quarter of 2024, Suncor reported net income of CAD 1.2 billion, or CAD 0.96 per diluted share, on revenues of CAD 12 billion. This marks an improvement over the same period in 2023, where the net income was CAD 1 billion, or CAD 0.80 per diluted share, on revenues of CAD 11 billion.
The increase in revenue and net income reflects Suncor’s resilience in navigating economic headwinds and its commitment to operational excellence and strategic growth.
- Trailing Price to Earnings (P/E) Ratio: 4.8
- Price to Sales (P/S) Ratio: 0.89
- Price to Book (P/B) Ratio: 0.95
- Return on Equity (ROE): 18%
- Net Profit Margin: 14.53%
- Current Ratio: 1.59
- 5-Year Earnings Per Share (EPS) Growth: 27%
Cargojet
Cargojet (TSX:CJT) is a compelling value stock due to the wide gap between its dominant competitive position and its current low valuation multiples (e.g., P/E ratio around $9.75). The company operates Canada’s essential, irreplaceable national network for time-sensitive air cargo, protected by high barriers to entry and long-term contracts. This infrastructure provides a strong competitive “moat” that ensures long-term stability and high free cash flow generation, characteristics the market is currently overlooking.
The stock’s recent price volatility and low valuation are rooted in temporary cyclical weakness, specifically the global trade slowdown reducing international ACMI (Aircraft, Crew, Maintenance, and Insurance) demand. However, the consistent strength of its profitable domestic network validates its core value proposition. Analysts view the headwinds as transient, positioning the stock with a high margin of safety. As global cargo volumes stabilize, the market is expected to re-rate Cargojet, allowing the stock price to converge with its high intrinsic value.
- Trailing Price to Earnings (P/E) Ratio: 9.75
- Price to Sales (P/S) Ratio: 1.16
- Price to Book (P/B) Ratio: 1.72
- Return on Equity (ROE): 17%
- Net Profit Margin: 12.5%
- Current Ratio: 1.26
- 5-Year Earnings Per Share (EPS) Growth: 17.2%
BCE Inc.
BCE (TSX:BCE) is a classic income value stock, prized for its high dividend yield (currently around 8.9%) and the stability derived from its monopoly-like control over Canada’s critical telecommunications network. This essential infrastructure creates immense barriers to entry, providing resilient, utility-like revenue streams. The stock trades at an attractive Price-to-Sales ratio of $1.22, which, combined with a high core Return on Equity (around 22%), confirms its strong operational quality and efficiency, suggesting the market is not fully pricing in the stability of this major Canadian corporation.
The company’s performance through Q3 2025 supports this value thesis, demonstrating robust execution with 20.6% growth in Free Cash Flow (over C$1 billion) for the quarter and sustainable revenue growth. This strong cash generation directly supports its high dividend. The stock’s current price, suppressed by high capital expenditures and interest rates, creates a significant margin of safety for income-focused value investors who prioritize predictable cash flow and high yield over rapid capital appreciation.
- Trailing Price to Earnings (P/E) Ratio: 4.9
- Price to Sales (P/S) Ratio: 1.22
- Price to Book (P/B) Ratio: 1.56
- Return on Equity (ROE): 22%
- Net Profit Margin: 18%
- Current Ratio: .61
- 5-Year Earnings Per Share (EPS) Growth: 44.3%
Investing in U.S. value stocks
Canadian investors can also look south of the border to invest in U.S. value stocks listed on exchanges like the New York Stock Exchange (NYSE) or NASDAQ. A great example of a U.S. value stock is Coca-Cola (NYSE:KO), which Warren Buffett has held in his portfolio for decades. Many of the screening criteria used above can be carried over as they are universal.
However, this approach requires converting CAD to USD, which can cost extra fees depending on your brokerage. If you’re interested in buying U.S. stocks as a Canadian investor, check out our Guide to Buying U.S. Stocks in Canada.
Another way is to buy an exchange-traded fund (ETF) that holds a portfolio of pre-selected U.S. value stocks, an example being the Vanguard Value ETF (NYSE:VTV).
How to pick value stocks
Value investors use numerous financial ratios and metrics to screen for stocks that are potentially trading in value territory. There are many ways to find undervalued stocks.
Some of the metrics commonly used by investors to compare stocks within the same industry include:
- Price-to-earnings ratio (P/E): Compares a company’s share price to its earnings-per-share (EPS). The price-to-earnings ratio shows what the market is willing to pay today for a stock based on its past (trailing) or future (forward) earnings. Stocks with a lower P/E relative to competitors in the same industry cost less per share for the same level of earnings.
- Price-to-book ratio (P/B): Calculated by dividing the current share price by its book value per share (BVPS). Usually, the share price is higher than the book value. Value investors generally look for a P/B of under 1, meaning that the share price is lower than the book value.
P/E and P/B are very commonly used ratios to screen for potentially undervalued companies. However, finding stocks with low ratios for both isn’t sufficient. Sometimes, a company may have a low P/E and P/B not because it is undervalued, but because it is actually unprofitable or does not have good growth potential. These stocks are called value traps.
How to avoid value traps
To avoid value traps, value investors should screen for these metrics:
- Current ratio: This ratio measures a company’s ability to meet short-term debts due within a year. A company with a current ratio of 2 is well-capitalized, meaning that it has $2.00 of assets on its balance sheet for every $1.00 of liabilities. Value investors typically look for a current ratio of 1.5 or more.
- Debt-to-equity ratio: This is calculated by dividing a company’s total liabilities by shareholder equity. It measures how well a company grows earnings and finances its assets using shareholder equity versus borrowing money. Value investors generally avoid higher ratios as this can be an indicator of large expenses and volatility.
- Positive EPS growth: A company’s history of earnings is very important to value investors. Often, value investors will only buy stocks that have grown earnings consistently over the last five years with no deficits. A streak of earnings losses can be a sign of a potentially unstable or unprofitable company.
- Return on Equity (ROE): ROE is calculated by net income divided by shareholder equity. It acts as a gauge for how well shareholders earn income on their shares. Value investors prefer companies with a history of a good ROE.
For each of these performance metrics, what constitutes a good ratio as value screening criteria will differ based on the industry in question and an investor’s risk profile. Investors can use a variety of free online screeners to choose the screens they want and set their desirable parameters for each.
Should you invest in Canadian value stocks?
The answer to this question depends on what your investment objectives are, what your risk tolerance is, and how much time you’re willing to spend researching potential value stock picks. Investors who want to stay hands-off and match the market’s return over the long run might opt for a low-cost index fund as their portfolio’s main investment.
If you want to be a Canadian value investor, you must be able to accept short-term unrealized losses. Value stocks have underperformed growth stocks and the market for prolonged periods on occasion.
In order to succeed, value investors must learn to “stay the course” through volatility after making their picks. Sometimes, the market can take a while to realize how undervalued a stock is, but once it does, that stock can quickly soar to its true price.