In this piece, we will take a look at seven most undervalued Canadian stocks to buy according to analysts.
The Canadian stock market experienced a notable rebound in the third quarter of 2024, following a sluggish performance earlier in the year. This resurgence was primarily fueled by a series of interest rate cuts by the Bank of Canada, which helped cool inflation and support broader economic recovery. The central bank’s actions, which included rate reductions totaling 75 basis points so far, have rejuvenated the real estate market and provided a significant lift to financial services stocks. According to a report by Reuters, the Toronto market gained 9.7% in Q3 2024, making it the strongest quarterly performance since 2019. The impact of these measures has created an optimistic outlook for the market, potentially setting the stage for continued growth in the coming months.
The third quarter proved to be the strongest for Canada’s main stock market, thanks to a combination of domestic rate cuts and rebounding global markets. Economies around the world showed signs of recovery, improving investor sentiment and benefiting Canadian equities. Financial and technology stocks were among the biggest contributors to the market’s positive performance, with financial stocks gaining 10% and tech stocks up by 12% during the quarter, according to data from Reuters.
This strong performance was driven by key players in the industry, highlighting the potential of Canadian financial and tech stocks. The financial sector also saw significant gains, supported by the large weight of financials in the Canadian index, which amplified the impact of rate relief on credit performance. The recovery was further bolstered by strong earnings reports and a pivot towards rate cuts by the U.S. Federal Reserve, which lent additional support to the Canadian market.
The impressive performance of Canadian stocks can be attributed to a combination of domestic and global factors. Analysts noted that the Bank of Canada’s rate cuts had a revitalizing effect on the real estate market, which in turn bolstered financial services stocks. Jimmy Jean, a prominent economist, pointed out that the expectation of additional rate cuts created a favorable environment for the real estate sector, allowing it to lead the market recovery.
Furthermore, the Canadian stock market benefited from a broader global recovery, as investor sentiment improved in tandem with solid earnings reports from international markets. In this context, Canada emerged as one of the best-performing markets worldwide in the third quarter, following a period of underperformance in the second quarter.
As the outlook for the remainder of the year unfolds, analysts anticipate that if the Bank of Canada continues its rate-cutting strategy, the positive momentum could persist. Lower mortgage rates are expected to alleviate borrowing costs for households, stimulating demand for housing and further strengthening the real estate and financial sectors. However, challenges remain, particularly in light of geopolitical tensions that could impact oil prices and the energy sector. Despite these concerns, the overall sentiment surrounding Canadian equities remains cautiously optimistic, with a focus on identifying undervalued stocks poised for growth in this evolving market landscape.
With these factors in mind, this article delves into the seven most undervalued Canadian stocks that analysts recommend for investors seeking opportunities in this recovering market.
Our Methodology
For this article, we used the Finviz stock screener to identify all the companies operating out of Canada with a forward Price-to-Earnings (P/E) ratio of less than 15 as of October 7, 2024. We then reviewed the price targets set by analysts for each stock and compared them to their respective closing prices on October 7 to evaluate the upside potential. Additionally, we analyzed data from approximately 912 elite hedge funds tracked by Insider Monkey during the second quarter of 2024 to assess hedge fund ownership of each company. The stocks are ranked in ascending order based on their upside potential.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. 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).
07. Magna International Inc. (NYSE:MGA)
Upside Potential: 17.07%
Forward Price to Earnings (P/E) Ratio: 6.67
Number of Hedge Fund Holders: 16
Magna International Inc. (NYSE:MGA), headquartered in Aurora, Canada, is a leading global supplier to the automotive industry. The company specializes in designing, engineering, and manufacturing a broad range of vehicle components and systems. Operating through four distinct segments, Body Exteriors & Structures, Power & Vision, Seating Systems, and Complete Vehicles, Magna International Inc. (NYSE:MGA) serves original equipment manufacturers (OEMs) of cars and light trucks worldwide. Founded in 1957, Magna has grown into a key player in the industry by delivering comprehensive solutions in body structures, electric drive systems, seating components, and vehicle manufacturing.
In the second quarter of 2024, Magna International Inc. (NYSE:MGA) reported consolidated sales of $11 billion, aligning with its sales figures from the same quarter last year. Adjusted EBIT came in at $577 million, reflecting a margin of 5.3%, slightly down from 5.6% in Q2 2023. Despite the lower EBIT percentage, Magna International Inc. (NYSE:MGA) managed to generate $123 million in free cash flow, compared to a use of $7 million in Q2 2023. The company’s ability to produce strong cash flow despite a challenging market environment highlights its operational efficiency and financial resilience.
Magna International Inc. (NYSE:MGA) management has taken proactive measures to enhance profitability by optimizing its cost structure and reducing capital expenditures. In the second quarter, the company lowered its capital expenditure outlook by an additional $100 million, bringing the total reduction to $200 million for 2024. This disciplined approach is expected to maintain Magna’s free cash flow outlook in the range of $600 million to $800 million for the year.
Further strengthening its financial position, Magna International Inc. (NYSE:MGA) continues to maintain a strong balance sheet, with $3.7 billion in liquidity, including $1 billion in cash, and an adjusted debt-to-EBITDA ratio of 1.9. The company’s focus on maintaining investment-grade credit ratings and reducing leverage indicates its commitment to shareholder value.
In addition to these financial metrics, Magna International Inc. (NYSE:MGA) is capitalizing on its innovation capabilities, as seen through recent contract wins with major OEMs and successful commercialization of new technologies. These strategic moves position Magna International Inc. (NYSE:MGA) to benefit from future growth opportunities in the evolving automotive landscape, making it one of the most undervalued Canadian stocks to buy according to analysts.
06. Canadian Solar Inc. (NASDAQ:CSIQ)
Upside Potential: 19%
Forward Price to Earnings (P/E) Ratio: 5.83
Number of Hedge Fund Holders: 10
Canadian Solar Inc. (NASDAQ:CSIQ) is a global leader in the renewable energy sector, providing solar energy and battery energy storage solutions across Asia, the Americas, and Europe. The company operates through two segments: CSI Solar and Recurrent Energy, offering products like solar modules, battery storage, and engineering services. Canadian Solar Inc. (NASDAQ:CSIQ) diverse product range and robust market presence along with a forward P/E ratio of 5.83 position it as a compelling choice for inclusion in our list of the most undervalued Canadian stocks.
In the second quarter of 2024, Canadian Solar Inc. (NASDAQ:CSIQ) posted strong financial performance, exceeding analysts’ expectations with an EPS of $0.05706 against an expected loss of $-0.01. The company achieved revenue of $1.6 billion and a gross margin of 17.2%, highlighting its ability to maintain profitability despite challenging market conditions. Canadian Solar Inc. (NASDAQ:CSIQ) shipped 8.2 gigawatts (GW) of solar modules, surpassing its guidance of 7.5 GW to 8 GW, reflecting a 30% quarter-over-quarter increase. The company’s strategic flexibility, supported by partial vertical integration, enabled it to capitalize on declining costs in the solar supply chain, bolstering its competitive cost structure.
The Recurrent Energy segment also demonstrated its strength, with a backlog of energy storage projects worth $2.6 billion, including significant contracts in the United States, United Kingdom, and Canada. Canadian Solar Inc. (NASDAQ:CSIQ) is actively expanding its energy storage capacity, projecting a 500% growth in this segment for 2024. This expansion positions the company to benefit from the increasing demand for renewable energy and storage solutions, driven by global initiatives to reduce carbon emissions and adopt cleaner energy sources.
Moreover, Canadian Solar Inc. (NASDAQ:CSIQ) focus on sustainable operations and its commitment to environmental, social, and governance (ESG) principles further strengthen its appeal. The company reported reductions in greenhouse gas emissions and energy consumption by 37% each and water usage by 72%, compared to 2017 levels. It aims to power all global operations with 100% renewable energy by 2030.
With its strong financial performance, strategic expansion in high-growth markets, and commitment to sustainability, Canadian Solar Inc. (NASDAQ:CSIQ) remains a top choice for investors seeking exposure to the renewable energy sector through an undervalued Canadian stock.
05. Equinox Gold Corp. (NYSE:EQX)
Upside Potential: 28%
Forward Price to Earnings (P/E) Ratio: 5.86
Number of Hedge Fund Holders: 17
Equinox Gold Corp. (NYSE:EQX) is a Canadian mining company focused on exploring, acquiring, developing, and operating gold and silver properties in the Americas. With a diversified portfolio spanning California in the U.S., Guerrero State in Mexico, several states in Brazil, and Ontario, Canada, the company has established a strong presence in the mining industry. Equinox Gold Corp. (NYSE:EQX) stock is worth considering for inclusion in the list of undervalued Canadian stocks due to its expansive asset base, strategic operational initiatives, and sound financial performance.
In Q2 2024, Equinox Gold Corp. (NYSE:EQX) demonstrated steady production with a focus on enhancing efficiency and cost management across its properties. The company produced over 122,000 ounces of gold in the second quarter and sold approximately 115,000 ounces, generating revenue of $269 million. This performance was driven by the initial production at its flagship Greenstone mine in Ontario, where the company recently acquired full ownership, consolidating its interest from 60% to 100%. This acquisition is expected to bolster Equinox Gold Corp. (NYSE:EQX) future cash flow and EBITDA, positioning the Greenstone mine as one of the largest and highest-grade open-pit gold mines in Canada.
Operationally, the company managed an average cash cost per ounce sold of $1,747 and an all-in sustaining cost (AISC) of $2,041 for Q2. Although these costs were higher than the same period last year due to temporary operational disruptions at the Fazenda mine in Brazil and geotechnical issues at the Piaba pit in Arizona, Equinox has undertaken mitigation measures and resumed production in affected areas. With operations now stabilizing and Greenstone’s production ramping up, the company is on track to reduce costs and achieve its revised guidance of producing between 655,000 and 750,000 ounces of gold for 2024.
From a financial standpoint, Equinox Gold Corp. (NYSE:EQX) reported $45 million in operating cash flow, highlighting its ability to generate solid cash flows despite increased costs. The company’s adjusted EBITDA for the quarter stood at $51 million, which remained consistent with Q1 2024. Equinox also undertook strategic financing activities, including a $500 million term loan and a $299 million equity financing, to support the Greenstone acquisition and strengthen its balance sheet.
With its robust production outlook, improved cost management, and strategic acquisitions, Equinox Gold Corp. (NYSE:EQX) is well-positioned for long-term growth, making it an attractive undervalued Canadian stock for investors seeking exposure to the mining sector.
04. North American Construction Group Ltd. (NYSE:NOA)
Upside Potential: 50%
Forward Price to Earnings (P/E) Ratio: 6.07
Number of Hedge Fund Holders: 11
North American Construction Group Ltd. (NYSE:NOA) is a prominent mining and heavy civil construction services provider, operating across Canada, the United States, and Australia. Its diversified operations encompass mine management, heavy equipment rentals, and full-service mine support, making it a valuable inclusion in any list of Canadian stocks. The company’s resilience and operational efficiency along with a forward P/E ratio of 6.07 as of October 8 position it as an undervalued stock with high potential for growth.
During its Q2 2024 earnings call, North American Construction Group Ltd. (NYSE:NOA) showcased strong financial and operational performance despite challenges such as weather disruptions and fleet mobilization in Canada. The company’s adjusted earnings per share (EPS) stood at CAD 0.78, identical to the previous quarter but significantly higher than the same period last year. This consistent growth highlights the company’s ability to navigate industry headwinds while delivering robust profitability. North American Construction Group Ltd. achieved a record EBITDA of CAD 87 million, reflecting a 26% EBITDA margin driven by strong results from its Australian operations. The recent MacKellar acquisition significantly contributed to this performance, as MacKellar posted an impressive 82% equipment utilization in the quarter.
The company’s Canadian operations experienced temporary setbacks due to wildfires and abnormal rainfall, impacting fleet utilization. However, management has taken proactive steps to mitigate these issues by reallocating idle equipment to high-demand regions in Australia. With utilization targets in Canada expected to recover by early 2025, the company is well-positioned for long-term profitability. Furthermore, the company’s Fargo-Moorhead flood diversion project achieved key milestones and remains on track, adding stability to its revenue streams.
From a balance sheet perspective, North American Construction Group Ltd. (NYSE:NOA) ended Q2 with net debt levels of CAD 833 million, resulting in a manageable leverage ratio of 2.2x. The company’s free cash flow generation is expected to improve in the second half of 2024, driven by better utilization rates and strategic debt management. The company’s focus on reducing debt and improving cash flows aligns with its strategy to enhance shareholder value.
Given its operational excellence, strategic growth initiatives, and strong financial metrics, North American Construction Group Ltd. (NYSE:NOA) is a compelling addition to the list of most undervalued Canadian stocks. Its well-managed operations and expanding presence in the Australian market make it a stock with significant upside potential.
In its Q3 2023 investor letter, Bonhoeffer Capital Management stated the following regarding North American Construction Group Ltd. (NYSE:NOA):
“North American Construction Group Ltd. (NYSE:NOA) is a construction services firm that provides heavy civil and bulk earthmoving and project and mine site operations services in supply-constrained markets. NAC is typically the first contractor in and the last contractor out of project and mine sites. NAC has over 3,500 employees and over 900 pieces of equipment in its fleet operating at 30 sites. The fleet has a replacement value of over $2 billion.
NAC was founded in 1953 as a civil construction firm. NAC has provided earthmoving services in Canada since the 1950s, in the oil sands since the 1970s, and for resources firms since the 1980s. NAC was sold to a private equity firm in 2003 and went public in Canada in 2006. A new CEO, Martin Ferron, was appointed in 2012. His goal was to increase geographic and service offering diversification and to increase return on invested capital (RoIC). In 2012, NAC sold its lower-returning and more cyclical divisions providing pipeline construction and piling-related construction, while retaining its oil sands earthworks business. Later in the 2010s, via acquisitions and partnerships with First Nations and other aboriginal groups, NAC expanded its service offerings and its geographic footprint to other geographies such as the US and Australia. Most of NAC’s invested capital is in large dump trucks and other earthmoving equipment. If NAC could maximize fixed asset utilization, then ROIC would increase. An economies of scale in purchasing and maintenance moat was created by having a highly utilized large fixed asset fleet in remote geographic locations with harsh conditions. Since 2015, equipment utilization has increased from an average of 40%, to 61% in 2023. NAC has a target goal of 75% to 85% by 2024. Since 2012, NAC’s RoIC has increased from -12% to 12%, with a current goal of 15%; and its return on equity has increased from -10% to 22%…” (Click here to read the full text)
03. Galiano Gold Inc. (NYSE:GAU)
Upside Potential: 108%
Forward Price to Earnings (P/E) Ratio: 2.46
Number of Hedge Fund Holders: 7
Galiano Gold Inc. (NYSE:GAU) is a Vancouver-based gold mining company primarily engaged in the exploration and evaluation of gold properties in Canada. The company’s flagship asset, the Asanko Gold Mine, is located in Ghana, West Africa, and spans approximately 21,000 hectares. Founded in 1999, Galiano Gold was formerly known as Asanko Gold Inc. before rebranding in May 2020.
Galiano Gold Inc. (NYSE:GAU) reported strong financial results for the second quarter of 2024, demonstrating robust performance metrics. The company achieved an adjusted EBITDA of $120.3 million, up from $114.3 million in the previous quarter, signaling a healthy upward trend in operational profitability. Net income for the quarter was $62.5 million, translating to earnings per share (EPS) of $0.31. This compares favorably with a net income of $65.4 million and EPS of $0.33 in the first quarter of 2024. Furthermore, Galiano Gold Inc. (NYSE:GAU) adjusted net profit stood at $63.4 million, with an adjusted EPS of $0.32, reflecting an increase from $58.4 million and EPS of $0.29 in Q1. This consistent performance underscores the company’s ability to generate strong earnings and cash flow.
On the operational front, Galiano Gold Inc. (NYSE:GAU) continued its strategic initiatives to optimize its mining operations, which included significant investments in equipment and infrastructure. The company’s balance sheet remains robust, with cash and cash equivalents of $103.1 million as of the end of the second quarter. Additionally, Galiano Gold Inc. (NYSE:GAU) has $150 million in undrawn credit facilities, providing the company with ample liquidity to pursue future growth opportunities.
From a debt management perspective, Galiano Gold Inc. (NYSE:GAU) reduced its total debt by approximately $33 million quarter-over-quarter, maintaining a conservative leverage strategy with a loan-to-value (LTV) ratio of around 34%. This prudent approach to debt management, combined with a solid dividend payout of $0.30 per share, highlights Galiano Gold Inc. (NYSE:GAU) commitment to delivering value to shareholders while maintaining financial stability.
With its solid financial metrics, efficient operational execution, and strategic initiatives, Galiano Gold Inc. (NYSE:GAU) presents an attractive investment opportunity in the gold sector, positioning it as one of the most undervalued Canadian stocks to consider according to analysts.
02. TRX Gold Corporation (NYSE:TRX)
Upside Potential: 254%
Forward Price to Earnings (P/E) Ratio: 6.16
Number of Hedge Fund Holders: 2
TRX Gold Corporation (NYSE:TRX), based in Oakville, Canada, is engaged in the exploration, development, and production of gold properties in the United Republic of Tanzania. The company’s primary asset is the Buckreef Gold Project, which includes a Special Mining License covering 16.04 square kilometers and 12 Prospecting Licenses spanning 98.19 square kilometers in north-central Tanzania. Formerly known as Tanzanian Gold Corporation, the company rebranded to TRX Gold Corporation (NYSE:TRX) in May 2022 to align with its expanded operations and strategic focus.
In Q3 2024, TRX Gold Corporation (NYSE:TRX) delivered a strong financial performance, showcasing significant revenue growth and improved gold production. The company reported revenues of over $10 million for the quarter, contributing to a year-to-date figure of around $30 million. The gross profit margin for Q3 2024 stood at approximately 43%, demonstrating robust operational efficiency. Year-to-date gross margins also remained strong at over 40%, highlighting TRX Gold’s ability to manage costs effectively despite increased production activities.
A key highlight from the earnings call was TRX Gold Corporation (NYSE:TRX) ability to ramp up production to nearly 1,900 tonnes per day, a substantial 116% increase compared to the previous quarter. This surge in production capacity resulted from the successful commissioning of the company’s 2,000 tonnes-per-day processing plant, which was expanded on time and within budget. The expansion was funded entirely through internally generated cash flow, preventing any dilution of shareholder value.
The company’s liquidity position remains healthy, with just under $8 million in cash and a debt-free balance sheet. This solid financial footing enables TRX Gold to explore further operational expansions and pursue strategic investments to optimize gold recovery rates. TRX Gold Corporation (NYSE:TRX) also benefits from favorable realized gold prices, with year-to-date prices averaging $2,300 per ounce and recent sales fetching as high as $2,460 per ounce.
Despite the rising operating costs due to higher mining expenses, TRX Gold Corporation (NYSE:TRX) remains focused on optimizing throughput and recovery rates to enhance profitability. The company’s transition from oxides to sulfide ores presents some challenges, but ongoing evaluations and potential investments in advanced milling technology are expected to mitigate these issues. With strong financial performance, operational expansion, and a solid liquidity position, TRX Gold Corporation (NYSE:TRX) is well-positioned for future growth, making it one of the most undervalued Canadian stocks to consider for investment according to analysts.
01. ProMIS Neurosciences, Inc. (NASDAQ:PMN)
Upside Potential: 750%
Forward Price to Earnings (P/E) Ratio: 5.32
Number of Hedge Fund Holders: 1
Topping our list of seven most undervalued Canadian stocks to buy according to analysts is ProMIS Neurosciences, Inc. (NASDAQ:PMN). It is a clinical-stage biotechnology company based in Toronto, Canada, focused on discovering and developing antibody therapies and therapeutic vaccines for neurodegenerative diseases and other misfolded protein disorders. The company employs a proprietary discovery platform that utilizes ProMIS and Collective Coordinates algorithms to identify novel targets, known as disease-specific epitopes, on the molecular surface of misfolded proteins. ProMIS’s lead candidate, PMN310, is a monoclonal antibody (mAb) that targets toxic oligomers in Alzheimer’s disease (AD).
In its recent second-quarter earnings report for 2024, ProMIS Neurosciences, Inc. (NASDAQ:PMN) announced several significant developments that underscore the company’s growth potential and progress in advancing its Alzheimer’s program. ProMIS reported positive topline data from its first-in-human Phase 1a clinical trial of PMN310. The trial, which evaluated the safety and tolerability of PMN310, demonstrated that the antibody was generally safe and well-tolerated across multiple dosage levels, with no severe adverse events observed. Importantly, PMN310 showed the ability to penetrate the central nervous system in quantities sufficient to potentially achieve target engagement. This is a critical step as the company prepares to advance to its Phase 1b clinical study in the second half of 2024.
Additionally, ProMIS Neurosciences, Inc. (NASDAQ:PMN) strengthened its financial position by securing up to $122.7 million in private placement financing. This includes an initial upfront investment of $30.3 million and the potential to raise an additional $92.4 million upon achieving certain milestones. These funds will support the continued development of PMN310 and the expansion of its pipeline. The robust financing participation from prominent healthcare specialty funds such as Great Point Partners, LLC, and Armistice Capital reflects investor confidence in ProMIS’s innovative approach to treating Alzheimer’s and other neurodegenerative diseases.
From a financial perspective, ProMIS Neurosciences, Inc. (NASDAQ:PMN) reported a net loss of $2.6 million for the quarter ended June 30, 2024, compared to a loss of $2.3 million in the same period in 2023. The company’s research and development expenses rose to $1.6 million, driven by increased costs related to the PMN310 clinical trial. With a strengthened balance sheet and positive clinical data, ProMIS Neurosciences, Inc. (NASDAQ:PMN) is well-positioned to continue its pursuit of transformative therapies for neurodegenerative diseases, making it a compelling investment opportunity among Canadian biotech stocks.
While we acknowledge the potential of PMN to grow, our conviction lies in the belief that some 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 PMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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