In this article, we will look at the 7 Undervalued Canadian Stocks To Buy According To Hedge Funds.
Canada’s Economic Outlook
According to the report Economic Outlook Canada Q4 2024, released by S&P Global on September 24, Canada’s economy shows signs of improvement, with growth expected to gain momentum in the coming years. S&P Global forecasts a 1.2% GDP growth in 2024 and a 2.0% growth in 2025, which still falls short of the country’s potential growth rate of 1.8%. However, a recovery in 2025 is expected to be driven by fixed investment, particularly residential and non-residential, rather than consumer spending. Consumer spending will remain subdued due to the cumulative effect of higher interest rates. Changes to immigration policies and their effectiveness are key uncertainties in the forecast.
The labor market in Canada is softening, with weaker hiring and rising unemployment. Wage growth is outpacing productivity growth, which is inconsistent with 2% inflation. The unemployment rate is expected to rise to 7% by the end of 2024 before falling in 2025. Despite this, 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 and is expected to continue making 25 basis point cuts in the fourth quarter and January.
Canada: A Prime Destination for Foreign Direct Investment
Canada is one of the world’s top destinations for foreign direct investment. Warren Buffett expressed a positive view of investing in Canada, stating that Berkshire Hathaway has a significant presence in the country with many operations and investments across various entities. He feels comfortable investing in Canada, just like in the US, as he understands the business environment and economy. Buffett noted that Canada’s economy moves closely with the US, and the results from his company’s businesses with Canadian operations are consistent with those in the US. He is open to investing in Canada, citing a past example where his company invested in a Canadian financial institution. Buffett stated that his company has no “mental blocks” about investing in Canada and views the country as a “terrific” place to operate. He also mentioned that Canada is a major economy that his company feels confident about operating in and that they are currently looking at a potential investment opportunity in the country.
Investing in Canada, particularly in the Atlantic region, presents a unique opportunity to capitalize on the growing demand for green hydrogen and its applications. Green hydrogen production can be leveraged to create new industries, such as ammonia and fertilizer production, as well as green steel, which can be produced using the region’s abundant natural resources and innovative technologies.
Canada’s economy is showing signs of improvement, with growth expected to gain momentum in the coming years. The Bank of Canada’s monetary policy adjustments and the recovery in fixed investment are expected to drive growth in 2025. With that in context, let’s take a look at the 7 undervalued Canadian stocks to buy according to hedge funds.
Our Methodology
To compile our list of 7 undervalued Canadian stocks to buy according to hedge funds, 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 15, as of September 25. We then narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
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 Undervalued Canadian Stocks To Buy According To Hedge Funds
7. Bank of Nova Scotia (NYSE:BNS)
Number of Hedge Fund Investors: 14
Forward P/E Ratio as of September 25: 11.27
Bank Of Nova Scotia (NYSE:BNS), also known as Scotiabank, is a Canadian multinational bank with a strong presence in Latin America, particularly in Mexico, Chile, and Peru.
Bank of Nova Scotia’s (NYSE:BNS) focus on international growth and solid domestic banking business position it for long-term expansion. In Q3, Bank of Nova Scotia (NYSE:BNS) demonstrated significant progress in its customer growth, with 143,000 net new clients added to its Canadian Retail and Tangerine businesses. The company’s growth prospects are also encouraging, with adjusted EPS expected to rise by 7.6% in FY 2025 and another 15.7% in FY 2026.
On August 30, Bank Of Nova Scotia (NYSE:BNS) announced the initial purchase of KeyCorp’s (NYSE:KEY) stock with an investment of approximately $800 million. Nova Scotia (NYSE:BNS) now owns approximately 4.9% stake in KeyCorp (NYSE:KEY), which is one of the largest bank-based financial services companies in the United States, with assets of approximately $187 billion as of June 30, 2024. The acquisition of KeyCorp (NYSE:KEY) is expected to gradually grow Nova Scotia’s (NYSE:BNS) return on equity (ROE) by approximately 45 basis points.
Bank Of Nova Scotia’s (NYSE:BNS) strong financial health, growth prospects, and attractive dividend yield make it a compelling investment opportunity for investors seeking income and growth. Bank Of Nova Scotia’s (NYSE:BNS) stock is trading at a forward PE of 11.27, a 5.97% discount to its sector median of 11.27. As of the second quarter, Bank Of Nova Scotia’s (NYSE:BNS) stock is held by 14 hedge funds with stakes worth $62.26 million. Marshall Wace LLP is the largest shareholder in the company and owns stocks worth $19.29 million as of June 30.
6. Sun Life (NYSE:SLF)
Number of Hedge Fund Investors: 14
Forward P/E Ratio as of September 25: 11.59
Sun Life (NYSE:SLF) is a leading global financial services company that provides insurance, wealth management, and retirement solutions to both individual and corporate clients. The company operates in various international markets, including Canada, the United States, and Asia.
Sun Life (NYSE:SLF) has been focusing on expanding its asset management business and leveraging its leadership in the life insurance market to drive future growth. In Q2, Sun Life (NYSE:SLF) showcased strong growth in the domestic market and impressive returns from its expansion into Asia, with a record underlying net income of $740 billion. Sun Life’s (NYSE:SLF) strategic partnerships with local business giants in Asia, such as Everbright Group in China and Aditya Birla Group in India, provide a strong foundation for growth in these fast-growing markets.
The growing middle class in Asia presents a substantial opportunity for the company’s expansion, particularly in markets such as India, Indonesia, and the Philippines. The company offers micro insurance products in India and Sharia-compliant products in Indonesia, which are expected to drive significant growth. Furthermore, Sun Life’s (NYSE:SLF) digital transformation efforts, including the incorporation of AI tools, will help drive operational efficiency and attract customers. The Indian life insurance market is expected to grow to $216 billion by 2028 with a CAGR of 10%, making it an attractive market for the company’s growth.
Sun Life (NYSE:SLF) is an attractive investment opportunity for dividend investors. As the company continues to execute its expansion strategy and grow its presence in Asia, analysts believe that Sun Life’s (NYSE:SLF) is a good investment opportunity. The company’s stock is trading at a forward PE of 11.59, a 3.34% discount to its sector median of 11.99. Analysts forecast the company to increase its earnings by 5.43% this year. As of the second quarter, the stock is held by 14 hedge funds, and the stakes amount to $123.25 million. GLG Partners is the largest shareholder in the company and owns stocks worth $44.17 million as of June 30.