In this article we present our list of 11 Undervalued Canadian Stocks To Buy Now. Click to skip ahead and see the top 5 Undervalued Canadian Stocks To Buy Now.
Gildan Activewear Inc. (NYSE:GIL), Open Text Corporation (NASDAQ:OTEX), and Bausch Health Companies Inc. (NYSE:BHC) are some of the most undervalued Canadian stocks to buy now according to hedge funds and analysts.
The Canadian stock market has fared quite a bit better than its American counterpart this year, as the S&P/TSX Composite Index has dipped by just 6% in 2022 compared to an 18% drop for the SPY. It’s a trend that could continue into the foreseeable future according to some money managers.
In an interview with Yahoo Finance Canada, Wellington-Altus Private Counsel portfolio manager Martin Pelletier said the TSX could outperform the S&P over the next decade thanks to Canada’s high exposure to resources against an increasingly commodity-scarce backdrop.
To that end, the Canadian government recently unveiled a billion-dollar plan to increase the production of critical minerals that are expected to be in high demand in the coming years and decades, including lithium, cobalt, nickel, and copper.
From a sector standpoint, energy and materials companies have much greater weighting in the TSX than they do in the S&P, with their weighting higher by 10.4 and 9 percentage points respectively. The S&P on the other hand has significantly more exposure to healthcare and tech stocks.
Bank of America agrees that the TSX could be an outperformer over the next decade, laying out several reasons to back up its claims, including the fact that the TSX is now more cash-rich than the S&P when adjusted for market cap, and that it yields twice as much as its American counterpart, the widest gap between the two in history.
Canadian stocks also look cheap from a valuation perspective according to the investment bank, which noted that based on the TSX’s normalized P/E of 16.4x, the index should be expected to return 10% annually for the next decade (including dividends), compared to projected 8% annual total returns for the S&P.
Given how cheap Canadian stocks look and their expected outperformance in the years to come, we’ve compiled a list of 11 undervalued Canadian stocks to buy now. All 11 of the following stocks have at least 20% upside in relation to analysts’ consensus estimates and have been ranked based on the number of top money managers long their shares.
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Our Methodology
The following cheap Canadian stocks are ranked based on hedge fund sentiment. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q3 2022 reporting period.
11 Undervalued Canadian Stocks To Buy Now
11. TELUS International (Cda) Inc. (NYSE:TIXT)
Number of Hedge Fund Shareholders: 7
Analysts’ Consensus Upside: 25.6%
Bausch Health Companies Inc. (NYSE:BHC), Gildan Activewear Inc. (NYSE:GIL), and Open Text Corporation (NASDAQ:OTEX) are some of the cheapest Canadian stocks to buy that analysts and hedge funds like. Another company on their radar is TELUS International (Cda) Inc. (NYSE:TIXT), an IT services company that is a subsidiary of TELUS Corporation.
Hedge fund ownership of TELUS International (Cda) Inc. (NYSE:TIXT) was flat during Q3, with seven of the select group of top hedge funds that are tracked by Insider Monkey’s database being long TIXT. D E Shaw sold off its position in the company during Q3, while Dmitry Balyasny’s Balyasny Asset Management added the stock to its 13F portfolio during the quarter.
Several analysts did cut their price targets on TELUS International (Cda) Inc. (NYSE:TIXT) over the last month following the release of the company’s Q3 results, which came in 3.5% lower on the sales front than the company had forecast. Analysts remain bullish on the company’s sales pipeline and long-term secular tailwinds however. Barclays has a $29 price target and ‘Overweight’ rating on the stock, while Scotiabank has a $26 target and ‘Sector Perform’ rating.
10. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Shareholders: 14
Analysts’ Consensus Upside: 24%
There was a smart money exodus from Lithium Americas Corp. (NYSE:LAC) in the second quarter, as there was a 47% drop in the number of hedge funds long LAC. That figure rebounded somewhat in Q3, as several funds added the stock to their portfolios. David Dattels’ NewGen Asset Management and Steve Cohen’s Point72 Asset Management were two of the funds buying Lithium Americas Corp during the latest quarter.
As noted in the intro, lithium is one of the key minerals that Canada aims to exploit in the coming years, being a vital component of electric vehicle batteries. Demand for lithium is expected to reach as much as 5 million tonnes by 2030, more than 30x greater than the market was just 12 years ago. Lithium Americas Corp. (NYSE:LAC), a development stage lithium mining company, hopes to be near the forefront of that Canadian charge.
Coverage of Lithium Americas Corp. (NYSE:LAC) was initiated last month by Evercore ISI, which gave the stock an ‘Outperform’ rating and $35 price target. It noted that early 2023 will represent an important milestone period for the company, which is awaiting approval for a planned project in Nevada, while simultaneously completing construction on its mine in Argentina. B. Riley has a $39 price target and ‘Buy’ rating on LAC shares, while Canaccord has a ‘Speculative Buy’ rating and CAD50 ($36.42) price target on them.
9. The Bank of Nova Scotia (NYSE:BNS)
Number of Hedge Fund Shareholders: 15
Analysts’ Consensus Upside: 20.1%
Hedge funds tend to hold bank stocks like The Bank of Nova Scotia (NYSE:BNS) for the long term, which is why their ownership of the stock has remained relatively stable over the years. There was a slight dip in ownership during Q3 however, with Paul Tudor Jones’ Tudor Investment Corp and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors selling off their BNS long positions.
The Bank of Nova Scotia (NYSE:BNS) grew revenue by 11% year-over-year in the quarter ended October 31 thanks to a continued surge in business loans, which grew by 25% from a year earlier. The company’s international business also saw a 15% boost in business loan activity as companies look to rebuild inventories. Excluding some items, BNS earned CAD2.06 ($1.50) per share, topping estimates by five cents (or four cents in U.S. dollars).
Canaccord, National Bank, RBC Capital, and BMO Capital all have price targets on The Bank of Nova Scotia (NYSE:BNS) that range between CAD83 to CAD86 ($60.46 to $62.65). BNS shares have fallen by 30% this year to a little over $50 on the NYSE.
8. Colliers International Group Inc. (NASDAQ:CIGI)
Number of Hedge Fund Shareholders: 15
Analysts’ Consensus Upside: 25.1%
There was a 35% drop in the number of funds long Colliers International Group Inc. (NASDAQ:CIGI) in Q2, followed by a slight rebound in the third quarter. Two of the top shareholders of the stock are extremely bullish on it, with 13F exposure to the stock amounting to 16.5% (Spruce House Investment Management) and 9.61% (BloombergSen).
Colliers International Group Inc. (NASDAQ:CIGI) is an investment management and professional services company based in Toronto that focuses on real estate. The firm manages about $92 billion in assets and its stock has delivered impressive compound annual returns of greater than 20% over the last 27 years. Colliers pulled in sales of $1.11 billion in Q3 and adjusted EPS of $1.41.
Coverage of Colliers International was assumed by Scotiabank analyst Michael Doumet in September, with the analyst downgrading CIGI shares to ‘Sector Perform’ from ‘Outperform’ and cutting the price target on them to $120 from $165. The analyst noted that Colliers is an easy to spot compounder being buffeted by secular tailwinds that are here to stay. However, he did feel the cyclical trends were running hot over the last year and should regress in 2023.
LRT Capital discussed the various aspects of Colliers International Group Inc. (NASDAQ:CIGI)’s business in its October 2022 investor letter:
“Colliers International Group Inc. (NASDAQ:CIGI) is a commercial real estate brokerage and investment management company founded by Jay S. Hennick in 1976 in Toronto, Canada. From humble beginnings the company has grown, primarily through acquisitions, to become one of the five largest commercial real estate brokerages in the world (the others being CBRE, Jones Lang LaSalle, Cushman & Wakefield, and Savills). The company today offers a full range of services and reports in the following segments: Outsourcing & Advisory (45% of revenue; this includes Engineering & Design services, Valuation services and Property Management), Capital Markets (25% of revenue), Commercial Real Estate Leasing (24% of revenue), and Investment Management (6% of revenue). The company believes that about half of its revenue is recurring in nature. The Investment Management segment deserves special attention, as it is the result of an acquisition of the real estate investment management company Harrison Street in 2018. While the segment contributes the smallest part of revenues, it has a very high margin, contributing over 17% of the company’s EBITDA…” (Click here to read the full text)
7. West Fraser Timber Co. Ltd. (NYSE:WFG)
Number of Hedge Fund Shareholders: 15
Analysts’ Consensus Upside: 30.8%
Hedge fund ownership of West Fraser Timber Co. Ltd. (NYSE:WFG) has trended down over the past five quarters, falling by 40% during that time. Michael Gelband’s ExodusPoint Capital unloaded its WFG stake during Q3, while Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors continued to cut the size of its position, which nonetheless remained the largest held by any of the funds tracked by Insider Monkey’s database.
No list of Canadian stocks would be complete without at least one timber-related company, a role which is filled on this list by West Fraser Timber Co. Ltd. (NYSE:WFG). The Vancouver-based logging company has experienced weakening demand for some of its key products, with Q3 sales sliding to $2.09 billion from $2.89 billion a quarter earlier, while earnings per diluted share slumped by more than two-thirds to $2.50. The company expects demand to pick up over the medium-term, driven by an aging housing stock and the work-from-home revolution, which should support more renovation activity.
Scotiabank has a CAD138 ($100.53) price target on West Fraser Timber Co. Ltd. (NYSE:WFG) and a ‘Buy’ rating on the shares, while Raymond James has a CAD150 ($109.27) target and ‘Outperform rating on them. The latter firm believes WFG shares have an attractive valuation even if one assumes a near-term economic and housing recession.
6. Lightspeed Commerce Inc. (NYSE:LSPD)
Number of Hedge Fund Shareholders: 16
Analysts’ Consensus Upside: 100%
Hedge fund ownership of Lightspeed Commerce Inc. (NYSE:LSPD) ticked up slightly during Q3, but is down by 43% since the middle of 2021. Adage Capital Management added another 1.3 million LSPD shares to its portfolio during Q3, lifting its stake to 4.92 million shares, accounting for more than 3% of the company’s outstanding float.
Things have been tumultuous at Lightspeed Commerce Inc. (NYSE:LSPD) over the last year, with shares losing 65% of their value this year at 88% since their September 2021 peak. The Montreal-based company’s founder stepped down as CEO earlier this year amid weakening sales guidance, with the company’s new CEO asserting that he believes the company grow sales by 35% to 40% year-over-year.
Lightspeed Commerce Inc. (NYSE:LSPD), which operates an omnichannel commerce platform for retailers, has been hit with several downgrades and price target cuts from analysts in the last month given its near-term headwinds, but analysts remain bullish on the company’s long-term growth story. Barclays has a $20 price target and “Overweight’ rating on LSPD shares, while Piper Sandler has an $18 price target and ‘Neutral’ rating.
Open Text Corporation (NASDAQ:OTEX), Bausch Health Companies Inc. (NYSE:BHC), and Gildan Activewear Inc. (NYSE:GIL) are three of the best cheap Canadian stocks to buy now. See why by clicking the link below.
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Disclosure: None. 11 Undervalued Canadian Stocks To Buy Now is originally published at Insider Monkey.
