According to the report Economic Outlook Canada Q4 2024 by S&P Global on September 24, Canada’s economy has been showing signs of improvement recently, but the growth is expected to remain below the country’s potential. The country’s GDP growth is expected to be 1.2% in 2024, which is a modest increase from the previous year. However, this growth rate is still short of the country’s potential growth rate of 1.8%, indicating that the economy is not growing at its full capacity.
The labor market also shows signs of softening, with weaker hiring and rising unemployment. This is a cause for concern, as a strong labour market is essential for driving economic growth. The unemployment rate is expected to rise to 7% by the end of 2024 before falling in 2025. This increase in unemployment will likely have a ripple effect on the economy, as higher unemployment rates can lead to reduced consumer spending and decreased economic activity.
Another area of concern is the relationship between wage growth and productivity growth. Wage growth is currently outpacing productivity growth, which is inconsistent with the 2% inflation target. This means that wages are increasing at a faster rate than the rate at which workers are producing goods and services. This can lead to higher production costs and reduced competitiveness for Canadian businesses.
Despite these challenges, the Bank of Canada (BoC) is shifting its focus to downside risks to the economic growth outlook. The BoC has already cut interest rates for the third consecutive time in an effort to stimulate the economy. Further interest rate cuts of 25 basis points are expected in the fourth quarter and January. These interest rate cuts are intended to make borrowing cheaper and encourage businesses and consumers to invest and spend.
The recovery in 2025 is expected to be driven by fixed investment, particularly residential and non-residential investment. This is a positive sign, as fixed investment is an important driver of economic growth. However, consumer spending is expected to remain subdued due to the effect of higher interest rates. Higher interest rates can make borrowing more expensive, reducing consumer spending and slowing economic growth.
Another key factor that will impact the economy is changes to immigration policies and their effectiveness. Immigration has been an important driver of economic growth in Canada, as it brings in new workers and skills to the labor market. However, changes to immigration policies can impact the number of immigrants coming to Canada and their ability to contribute to the economy.
Canada’s Economy Poised to Catch Up with US
James Orlando, a senior economist at TD Bank, is bullish on Canada’s economic growth prospects, particularly in the wake of the Bank of Canada’s recent interest rate cuts. He believes that this change in interest rate policy could be the catalyst that helps Canada close the economic growth gap with the United States. For years, Canada’s economic growth has trailed behind that of the US, but Orlando thinks that the rate cuts could be the turning point.
According to Orlando, the Canadian economy is highly sensitive to interest rate fluctuations, especially in the housing market. With a high level of debt and a reliance on variable-rate mortgages, Canadians are particularly vulnerable to changes in interest rates. However, with the recent rate cuts, Orlando expects to see a surge in investment in the housing market, which could lead to improved affordability. Orlando is confident that the rate cuts will stimulate economic growth and create new job opportunities.
The Canadian economy is also poised to benefit from increased investment in key areas such as the green transition and electric vehicle production. With a growing population and a need for more housing, Orlando anticipates a significant increase in investment in the housing market and other sectors. As the economy continues to grow, Orlando expects to see a rise in consumer spending, which will further fuel economic growth. While challenges still lie ahead, Orlando is optimistic that the Bank of Canada’s rate cuts and the resulting economic stimulus will drive growth and create jobs in the Canadian economy.
Canada’s economy is expected to experience modest growth in the coming years, driven by fixed investment and a soft labor market. With that in context, let’s take a look at the 7 cheap Canadian stocks to invest in.
Photo by Rachael Annabelle on Unsplash
Our Methodology
To compile our list of 7 cheap Canadian stocks to invest in, we used the Finviz and Yahoo stock screeners to find the largest Canadian companies. From that list, we screened for companies that are trading at a forward P/E ratio of under 20 as of September 28. We then narrowed our choices to 7 stocks according to analyst upside potential. The list is sorted in ascending order of their upside potential as of September 28.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Cheap Canadian Stocks To Invest In
7. Toronto-Dominion Bank (NYSE:TD)
Upside Potential: 3.23%
Forward P/E Ratio as of September 28: 10.78
Number of Hedge Fund Investors: 22
Toronto-Dominion Bank (NYSE:TD), also known as TD Bank, is one of the largest banks in Canada and offers a wide range of financial services in Canada and the U.S.
In Q3, Toronto-Dominion Bank (NYSE:TD) reported adjusted earnings of $3.6 billion, revenue up 10% year-over-year (YoY) and 3% quarter-over-quarter (QoQ), indicating that its core business is still growing despite headwinds. The bank’s net income for the quarter was $1.87 billion, up 13% YoY, driven by strong revenue growth in its Canadian Personal and Commercial Banking segment. The segment’s revenue increased by 9% YoY to $5.00 billion, primarily driven by volume growth and higher margins.
Toronto-Dominion Bank’s (NYSE:TD) Wholesale Banking segment also performed well, with net income increasing by $45 million to $317 million, despite high provisions for credit losses (PCLs). The segment’s revenue increased 8% YoY to $1.43 billion, driven by higher trading revenue and fees.
The bank’s strategic acquisitions of Cowen and First Horizon have helped it expand its footprint across the U.S. and strengthened its position in the American market. Furthermore, Toronto-Dominion Bank (NYSE:TD) has a long history of paying consistent and growing dividends, with a 5-year dividend growth rate of 7.3%. The dividend yield of around 4.5% to 5% at the current price makes it an attractive option for income-focused investors.
Toronto-Dominion Bank (NYSE:TD) is trading 10.78 times its earnings, a 9.81% discount compared to the sector median of 11.95. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $64.97, which represents a 3.23% upside potential from its current level.
6. Imperial Oil (NYSE:IMO)
Upside Potential: 8.33%
Forward P/E Ratio as of September 28: 10.61
Number of Hedge Fund Investors: 18
Imperial Oil (NYSE:IMO) is a prominent player in Canada’s energy industry, with a diverse range of operations spanning exploration, production, refining, and petroleum product distribution. As a majority-owned subsidiary of ExxonMobil, the company plays a significant role in the country’s oil sands sector.
Imperial Oil (NYSE:IMO) has made significant strides in reducing its environmental impact, particularly with the launch of its Grand Rapid project in May. This innovative project utilizes solvent-assisted technology to produce oil at its Cold Lake site in Alberta, resulting in a reduction of greenhouse gas emissions by up to 40%. This achievement brings the company closer to its goal of decreasing oil sands emissions by 30% by 2030. The Grand Rapid project is expected to produce 15,000 barrels of oil per day.
In addition to the Grand Rapid project, Imperial Oil (NYSE:IMO) is also expanding its Cold Lake oil sands facility through the Leming redevelopment, set to commence in 2025. Once operational, this project will increase production by 9,000 barrels per day and produce 20,000 barrels per day of diesel from local green sources, further solidifying the company’s commitment to sustainability.
Imperial Oil (NYSE:IMO) has been capitalizing on higher crude oil prices and has been increasing its operational efficiency in recent years. Imperial Oil (NYSE:IMO) is trading 10.66 times its earnings, a 5.42% discount compared to the sector median of 11.22. The company’s earnings are expected to grow by 4.26% this year. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $74.65, which represents an 8.33% upside potential from its current level.
5. Kinross Gold (NYSE:KGC)
Upside Potential: 8.59%
Forward P/E Ratio as of September 28: 15.96
Number of Hedge Fund Investors: 37
Kinross Gold (NYSE:KGC) is a global gold mining company with operations in the Americas, West Africa, and Russia. The company focuses on high-quality development projects and has several projects on the horizon, including the Great Bear project in Ontario, the Manh Choh project in Alaska, and the Lobo-Marte project in Chile.
On September 10, Kinross Gold (NYSE:KGC) released the Preliminary Economic Assessment (PEA) for its Great Bear Project in Ontario, Canada. The study envisions an open-pit and underground operation that will produce 430,000 ounces per annum on average, with production of 518,000 ounces per annum in its first eight years. The project is expected to have a very modest throughput and overall footprint of 10,000 tonnes per day, with industry-leading open-pit grades of 3.0 g/t of gold. The company has also reported an impressive intercept of 32.4 meters at 29.6 g/t of gold at Round Mountain, making it a top-12 intercept drilled in Nevada over the past four years on a gram-meter basis.
In Q2, Kinross Gold (NYSE:KGC) reported a 4% decline in production to 535,300 gold-equivalent ounces (GEOs). The company’s lower production was related to a sharp decline in output at Tasiast, Paracatu, and La Coipa. However, the company’s U.S. operations, including Fort Knox and Round Mountain, reported higher production. Despite the decline in production, the company’s revenue increased by 10% year-over-year to $1.43 billion, driven by higher gold prices. The company’s all-in-sustaining costs (AISC) increased by 7% to $1,387 per ounce, but the higher gold price offset the increase in costs, resulting in a 40% increase in AISC margins to $955 per ounce.
Moreover, Kinross Gold (NYSE:KGC) has been focused on optimizing production and cost controls, which has helped offset volatile gold prices. Kinross Gold (NYSE:KGC) is trading at a forward PE of 15.96, a 4.12% discount to its sector median of 16.65. Analysts expect the company to increase its earnings by 32.38% this year and have a consensus on the stock’s Buy rating, setting an average share price target at $10.68, which represents an 8.59% upside potential from its current level.
4. Equinox Gold (NYSE:EQX)
Upside Potential: 12.89%
Forward P/E Ratio as of September 28: 16.88
Number of Hedge Fund Investors: 17
Equinox Gold (NYSE:EQX) is a Canadian mining company engaged in the exploration, development, and operation of gold projects across the Americas. The company’s portfolio includes several producing mines and development projects including Mexico, Brazil and Canada.
On August 29, Equinox Gold (NYSE:EQX) celebrated the official opening of its Greenstone Mine in Geraldton, Ontario, positioning the company as one of Canada’s largest and lowest-cost gold producers. The Greenstone Mine is now 100%owned by Equinox Gold (NYSE:EQX); the mine first produced gold in May and has since continued to ramp up to commercial production. In the months of May, June, and July, the mine produced approximately 2,625 ounces, 13,625 ounces, and 19,750 ounces, respectively, with average throughput exceeding 60% of design capacity in August to date. As the mine continues to reach its full potential, Equinox Gold’s (NYSE:EQX) management is optimistic about its future prospects and the role it will play in the company’s growth and success.
Gold prices are experiencing a significant surge, on August 27, gold prices reached an all-time high of $2,531.70 per ounce, due to strong demand and favorable market conditions. J.P. Morgan Research forecasts that gold will maintain a stable price of $2,500 per ounce by the end of 2024 and rise to $2,600 per ounce in the first half of 2025. Equinox Gold (NYSE:EQX) is exceptionally well-positioned to capitalize on the upward trend in gold prices. Equinox Gold (NYSE:EQX) is trading 16.88 times its earnings. The company’s earnings are expected to grow by 134.88% this year. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $7.35, which is a 12.89% upside potential from its current level.
3. Suncor Energy (NYSE:SU)
Upside Potential: 20.88%
Forward P/E Ratio as of September 28: 9.45
Number of Hedge Fund Investors: 44
Suncor Energy (NYSE:SU) is a leading integrated energy company based in Alberta, Canada. Suncor Energy (NYSE:SU) is also engaged in the exploration, development, and production of crude oil and natural gas, along with refining and marketing of petroleum products.
Suncor Energy’s (NYSE:SU) integrated business model provides a substantial competitive edge in the energy sector, allowing it to streamline its operations and minimize costs. The company owns a reserve base of over 7 billion barrels of oil, which ensures a reliable long-term source of production and revenue. Additionally, Suncor Energy (NYSE:SU) is known for its low costs, with a corporate decline rate of 5%.
Suncor Energy (NYSE:SU) has achieved significant milestones in reducing its costs and enhancing operational efficiency. The company has implemented various initiatives to reduce operating expenses, including the adoption of advanced technologies and optimized production processes. These efforts have yielded substantial cost savings and improved profitability. Notably, in Q2, the company’s net debt decreased by $500 million, bringing it to $1.1 billion above its target of $8.0 billion.
Suncor Energy (NYSE:SU) is trading at a forward PE of 9.45, a 15.85% discount to its sector median of 11.22. Analysts expect the company to increase its earnings by 3% this year and have a consensus on the stock’s Buy rating, setting an average share price target at $44.96, which represents a 20.88% upside potential from its current level.
2. Nutrien (NYSE:NTR)
Upside Potential: 21.94%
Forward P/E Ratio as of September 28: 12.89
Number of Hedge Fund Investors: 35
Nutrien (NYSE:NTR) is the world’s largest provider of crop inputs and services. The company was formed in 2018 through the merger of Agrium and Potash Corporation of Saskatchewan and provides a range of products and services to farmers, including fertilizers, seed, and crop protection products. Nutrien (NYSE:NTR) has a diverse portfolio of operations in North and South America, Europe, and Asia.
One of the key drivers of Nutrien’s (NYSE:NTR) growth is the increasing demand for potash, a key ingredient in fertilizers. According to the company’s investor presentation, potash demand in Latin America, Europe, and China is expected to grow meaningfully over the next five years, and the company is well-positioned to capitalize on this trend due to its significant presence in these regions.
Nutrien (NYSE:NTR) has a strong balance sheet, with a debt-to-equity ratio of 0.6 and a significant cash balance. The company generating $2.7 billion in free cash flow over the past 12 months. This provides a significant buffer against any potential downturns in the industry and allows the company to invest in growth initiatives and return capital to shareholders.
The company’s stock is trading at a forward PE of 12.89, a 22.55% discount to its sector median of 16.65. Analysts have a consensus on the stock’s buy rating, setting a target price of $60.65, which suggests a 21.94% upside potential compared to current levels.
1. Cenovus Energy (NYSE:CVE)
Upside Potential: 39.70%
Forward P/E Ratio as of September 28: 9.00
Number of Hedge Fund Investors: 46
Cenovus Energy (NYSE:CVE) is a Canadian oil company focusing on oil sand production and refining. The company owns a diverse asset base that spans Western Canada, the United States, and other international locations. Cenovus Energy (NYSE:CVE) operations include conventional oil and gas fields, oil sands, and a refining segment, which comprises two refineries in the United States.
In Q2, Cenovus Energy (NYSE:CVE) delivered a production beat, producing 800,800 barrels of oil equivalent per day, exceeding consensus expectations. The company also upgraded its guidance for downstream performance for the second half of the year. This positive outlook is further enhanced by the company’s high free cash flow yield, which is significantly higher than its peers.
Cenovus Energy (NYSE:CVE) has achieved its net debt target of $4.0 billion and is now shifting its focus towards returning value to shareholders. As part of this strategy, the company will allocate 100% of its excess free cash flow towards share repurchases, which will not only reduce its share count but also increase earnings per share. This move is expected to create long-term value for investors.
Cenovus Energy (NYSE:CVE) presents an attractive investment opportunity for those seeking a high-quality energy company with strong growth prospects. The company’s stock is trading at a forward PE of 9, a 19.79% discount to its sector median of 11.22. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $24.36, which represents a 39.4% upside potential from its current level. In the second quarter, Cenovus Energy’s (NYSE:CVE) stock was held by 46 hedge funds with stakes worth $1.21 billion.
While we acknowledge the potential of Cenovus Energy (NYSE:CVE) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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