We recently published a list of 10 Cheap Canadian Stocks to Buy According to Analysts. In this article, we are going to take a look at where Royal Bank of Canada (NYSE:RY) stands against other cheap Canadian stocks to buy according to analysts.
Canadian Market Outlook 2025
In January, RBC Global Asset Management released its Market Outlook for Canada. Scott Lysakowski, the Managing Director & Senior Portfolio Manager, Head of Canadian Equities reflected on the Canadian market’s performance in 2024. He noted that the Canadian equity market, particularly the S&P/TSX Composite Index, experienced a notable year. The TSX achieved a total return of approximately 21%, which Lysakowski thinks is commendable, especially considering the broader economic context. However, this performance was somewhat overshadowed by the US market, where mega-cap stocks led the charge. The TSX’s gains, while substantial, were not as robust as those in the US, which Lysakowski attributed to the dominance of large-cap stocks in the latter part of the year.
Lysakowski noted that one interesting observation from 2024 was the brief increase in market breadth following significant events, such as elections. During these periods, mid-cap and small-cap stocks temporarily outperformed, suggesting a potential shift towards broader market participation. However, this trend was short-lived, and the year concluded with mega-cap stocks once again driving the majority of returns. The top ten stocks in the market contributed significantly to the overall performance, highlighting the persistent dominance of these large players.
Moreover, in analyzing the composition of returns for the TSX, Lysakowski suggests that it’s clear that the 21% total return consisted of a 3% dividend yield, with the remaining 18% split between earnings growth and valuation changes. Specifically, earnings growth accounted for about 9%, and multiple expansions contributed around 7%. In contrast, the US market, particularly mega-cap stocks, saw more pronounced earnings growth and multiple expansions, which explains their superior performance.
Looking ahead to 2025, Lysakowski noted that the outlook remains uncertain, partly due to macroeconomic factors such as the weakness in the Canadian dollar. This currency volatility is a significant concern for Canadian equities, as it impacts both investor sentiment and the macroeconomic outlook. Furthermore, the divergence in earnings growth between mega-cap and small-cap stocks suggests that until smaller companies demonstrate stronger earnings growth, the dominance of large-cap stocks will likely continue. This dynamic will be crucial to monitor in the coming year, as broader market participation could have a positive impact on Canadian equities.
Our Methodology
For this article, we used the Finviz stock screener, Yahoo Finance, Seeking Alpha, and CNN as our sources. Using the screener we aggregated a list of Canadian stocks that are trading below a Forward P/E of 15, with earnings growth expectations this year, and an upside potential of more than 10%. Next, we cross-checked the FWD P/E for each stock from Seeking Alpha and earnings growth from Yahoo Finance. Lastly, we ranked the stocks in ascending order of the average upside potential. Please note that the data was recorded on March 3rd, 2025.
Why are we interested in 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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Royal Bank of Canada (NYSE:RY)
Forward P/E Ratio: 12.71
Earnings Growth This Year: 11.22%
Analyst Upside Potential: 14.29%
Royal Bank of Canada (NYSE:RY) is a large Canadian financial institution that offers a variety of services to individuals, businesses, and governments. It provides everyday banking services like checking accounts, loans, and investments to individuals and businesses in Canada, the Caribbean, and the US. It also helps wealthy individuals manage their money by offering investment advice and trust services. Additionally, the bank is engaged in Capital Markets and Insurance.
On February 26, Analyst Matthew Lee from Canaccord Genuity maintained a Buy rating on the stock with a price target of C$191. The analyst noted that the bank’s adjusted cash earnings per share exceeded both consensus and internal estimates, indicating robust earnings growth. This suggests that Royal Bank of Canada (NYSE:RY) is performing better than expected financially. Moreover, the revenue and expense ratio also outperformed expectations, demonstrating effective cost management and operational efficiency.
Royal Bank of Canada (NYSE:RY) reported strong financial performance in the first quarter of 2025. It achieved a record net income of $5.1 billion, marking a 43% increase from the previous year. Furthermore, its ROE was 16.8%, reflecting robust profitability. As a result of strong deposit growth in Personal Banking and loan growth in Commercial Banking, the net interest income rose by 26% year-over-year. Analysts expect around 14% upside during the next 12 months making it one of the cheap Canadian stocks to buy according to analysts.
Overall, RY ranks 10th on our list of cheap Canadian stocks to buy according to analysts. While we acknowledge the potential of RY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
