We recently compiled a list of the 11 Best Undervalued Stocks to Invest in Now. In this article, we are going to take a look at where Royal Bank of Canada (NYSE:RY) stands against the other undervalued stocks.
How Will Tariffs Affect the Market?
On March 5th, BBC reported that the US stock market had fallen after the tariffs sparked trade war fear. The recent imposition of tariffs by President Donald Trump on imports from Canada, Mexico, and China has sparked significant concerns about a potential trade war. The United States has imposed a 25% tariff on most imports from these countries, with Canadian energy products facing a 10% tariff. On the other hand, tariffs on Chinese imports have been increased from 10% to 20%. As a result, Prime Minister of Canada, Justin Trudeau announced immediate tariffs on $30 billion worth of US goods, with plans for additional tariffs on $125 billion in goods over the next three weeks. Moreover, China imposed tariffs ranging from 10% to 15% on various US agricultural imports, such as chicken, pork, and soybeans. The tariffs have raised fears of inflation and a broader trade conflict, leading to a decline in US and global stock markets. As a result, the S&P 500 experienced a significant drop, and European markets also closed lower.
Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.
While talking about how the Fed might react to the tariffs, Fisher mentioned that it is a little too early to guess. The Fed is bringing inflation down and we are getting closer to the 2% target, however, at the same time tariff increases the cost of doing business, which might slow down the economy and tickle up inflation. To conclude Fisher noted that tariffs won’t be digested quickly and will take time.
Our Methodology
For this article, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated a list of stocks trading below the forward P/E of 15 and earnings growth expectations this year. Next, we cross-checked the Forward P/E from Seeking Alpha and Earnings growth from Yahoo Finance. Lastly, after sorting our list by market capitalization, we ranked the stocks in ascending order of the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 database of hedge funds.
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).
An investment banker in a power suit entering an exclusive board room with a confident stride.
Royal Bank of Canada (NYSE:RY)
Forward P/E Ratio: 12.71
Earnings Growth This Year: 11.22%
Number of Hedge Fund Holders: 31
Royal Bank of Canada (NYSE:RY) is a Canadian financial company that operates by providing banking services for businesses, individuals, and governments. Its services include everyday banking including, checking accounts, loans, and investments to individuals and businesses. Moreover, the bank also helps in wealth management, investment advice, and trust services for people in Canada, the US, and the Caribbean.
During the fiscal first quarter of 2025, the bank reported strong financial performance. It grew its net income by 43% year-over-year to reach a record high of $5.1 billion. Royal Bank of Canada (NYSE:RY) was able to maintain an ROE of 16.8%, reflecting profitability. Moreover, the company’s net interest income also grew by 26% year-over-year, driven by strong deposit growth in Personal Banking and loan growth in Commercial Banking.
On February 26, Matthew Lee from Canaccord Genuity maintained a Buy rating on the stock with a price target of C$191. Lee noted that Royal Bank of Canada (NYSE:RY) has exceeded market and internal estimations in its adjusted earnings per share. Moreover, the revenue and expense ratio also came above expectations thereby justifying a Buy rating on the stock. It is one of the best-undervalued stocks to invest in now.
Overall RY ranks 11th on our list of the best undervalued stocks to invest in now. 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.