11 Best Value Stocks In Canada (2022): Find Undervalued Gems

Most investors are fascinated with stories of people like Michal Burry, the man who predicted the housing market collapse of 2008 and made US$ 800 million by shorting the housing market.

It’s a powerful example of how a unique perspective, an acute perception, and ingenious investment techniques can help you beat the market. But this is a hard-to-replicate feat with a high probability.

Most retail investors are more likely to succeed by following time-tested strategies like value investing, which is easy, boring, but works.

If held for long enough, these best value stocks in Canada (if held for long enough) are an excellent place to start.

Value Investing – What Do You Need To Know?

Value Investing – What Do You Need To Know?

In its simplest form, the definition of a value stock is “a stock that’s trading for less than its intrinsic value.” This term and the definition have been around since 1949 and were introduced by Benjamin Graham – the father of value investing.

But when you start choosing value stocks, you will realize it’s not quite simple. Different investors have different interpretations of a company’s intrinsic value since that’s what the valuation discount is calculated upon.

Warren Buffett’s value investing strategy focuses on cash value projections, and other traits he focuses on are known entities, modest/under diversification of portfolio, etc.

It takes time to build up a decent investment acumen. Also, unlike seasoned investors like Warren Buffett, that are in the business of making money through investment, most retail investors can’t dedicate enough time and energy to developing an eye for the perfect value stocks.

So an easy way to streamline the process of choosing value stocks is to stick with the most commonly used metrics. And the two most important ones are:

Price-To-Earnings (P/E) Ratio: This is the most commonly used metric for value investing. It compares the stock price to the company’s earnings.

A low P/E ratio shows a positive discrepancy between what the investors are willing to pay for a stake in the company (the price) and its earnings/financial potential.

Similarly, a high value indicates companies that are overvalued. This ratio is only applicable when comparing stocks from the same industry.

For example, in Canada, a banking stock with a P/E ratio of 20 might be relatively overvalued, but a tech stock would be considered significantly undervalued. It also changes from time to time.

Price-To-Book (P/B) Ratio: This ratio connects a company’s share price to its book value (assets) and leans more towards tangibility.

Unlike P/E, there is a relatively generalized threshold for the P/B ratio, and stocks with ratios lower than 1.5 are generally compared as undervalued.

It’s important to note that while discounted stocks are often undervalued as well (since the price falls, pushing down the value of P/E and P/B ratios), it is not always the case, so it’s prudent to check the valuation metrics even when you encounter a significant price discount.

Undervalued Canadian Stocks

The Canadian markets have a decent collection of undervalued stocks at any given time.

However, the connection between valuation and return potential is worth exploring because if all you get from an undervalued stock is a discount (Even if you hold it long-term), it defeats the purpose.

11 Best Value Stocks In Canada

While most of the best Canadian value stocks are evaluated/picked using the valuation metrics, some might not fit the criteria.

That’s because I am following a relatively broader definition of a company’s intrinsic value.

1. Suncor Stock

Suncor Energy Stock

Ticker: SU
Sector: Energy
Industry Niche: Integrated energy company
Dividends: Yes  

Suncor is a Canadian energy giant and one of Canada’s few fully-integrated energy companies. It covers the entire value chain – From extracting oil from oil sands to selling it on its own massive gas station chain (Petro-Canada), with nearly 1,600 locations.

And since it’s fully integrated, its asset base is massive and total assets have been much higher than the market cap for quite a few years now.

Suncor’s undervaluation comes from the energy sector’s decline as a whole. But as the post-pandemic market revealed, the energy sector has much to give (still). If you buy it at a discounted valuation, Suncor might offer decent returns (given enough time), and meanwhile, you can benefit from its dividends.

2. Shopify Stock

Shopify Stocks

Ticker: SHOP
Sector: Tech
Industry Niche: E-commerce platform
Dividends: No 

Shopify’s valuation discount is a 2022-specific event since that’s when the company started experiencing its massive decline after enjoying an unparalleled bullish phase practically since inception.

The company is not undervalued if you stick to the metrics, and it doesn’t have a strong/valuable asset base since it’s basically an online platform. But its intrinsic value comes from its position in the market.

It has the number one market share in the US and Australia, number two in UK and Germany, and it’s always in competition for the top spot with WooCommerce.

Its eco-system, online store revenue, and user base are all growing, and even though the price is still quite distant from the financial fundamentals, the stock is a bargain at mid-three digits.

3. Molson Coors Canada Stock

Molson Coors Canada Stock

Ticker: TPX.B
Sector: Consumer staples
Industry Niche: Beverages/Beer
Dividends: Yes

Molson Coors, currently headquartered in Ontario, came into being thanks to a 2005 merger of US-based Coors and Canada-based Molson.

Molson has been around for more than two centuries and Coors for about one and a half-century.

Collectively, it’s the fifth-largest beer company in the world, has 15 brands and 42 breweries under its banner, and sells its beverages in over a hundred countries.

It’s also relatively undervalued if you consider its assets, reach, and even its revenues/earnings. Plus, it’s almost an evergreen business.

In fact, beer sales actually increase during financially and emotionally stressful events like the pandemic and the great recession.

4. Canadian Apartment Properties REIT Stock

Canadian Apartment Properties REIT Stock

Ticker: CAR.UN
Sector: Real Estate  
Industry Niche: Residential REIT
Dividends: Yes

The largest REIT in the country by market cap is also one of the largest from an asset perspective. It has a massive portfolio of 67,500 residential suites, which mainly includes apartments and townhouses, and communities.

The bulk of the portfolio is here in Canada, but a significant portion is overseas in the Netherlands. The largest segment of the portfolio is in Ontario, with the second-highest net average rent.

Its book value is massive and is usually double the size of its market capitalization, which results in a healthy P/B ratio.

Not only does it offer decent capital appreciation potential, especially if bought undervalued, but the dividends are quite decent, healthy, and growing as well.

5. Air Canada Stock

Air Canada Logo

Ticker: AC
Sector: Industrials 
Industry Niche: Airline
Dividends: No

Before the pandemic devastated the economy and sent many businesses reeling from its financial blows, Air Canada stock was a coveted investment for more than just its leadership position in the Canadian air travel industry.

But the pandemic has been quite rough on the company. Even though it’s not undervalued from an earnings perspective (since it has experienced losses in several consecutive quarters), it is pretty discounted if you take its assets and international air travel dominance into account.

It has a massive fleet of Boeing, Airbus, Mitsubishi, Embraer, and De Havilland aircraft, and even at resale value, the fleet is significantly more valuable than the current market capitalization of the company. And that’s just one facet of its “tangible” assets.

6. FirstService Stock

FirstService Stock

Ticker: FSV
Sector: Real Estate  
Industry Niche: Property management, essential real estate services
Dividends: Yes

FirstService is a leader in the two spaces it operates. As a property manager, it has the most extensive portfolio of properties (primarily residential) in North America.

As a provider of essential real estate services, it has captured a significant portion of the market.

FirstService is all about growth. Since its inception, it has been consistently growing its payouts, revenues, EBITDA, and EPS.

This has also resulted in remarkable capital appreciation potential, which means its undervaluation should not be assessed from a financial perspective but rather from its future cash flow angle and its leadership position.

That said, FirstService undervaluation is most likely a temporary scenario (2022 specific).

7. Bausch Health Companies Stock

Bausch Health Companies Stock (TSX)

Ticker: BHC
Sector: Healthcare   
Industry Niche: Contact lenses, specialty pharmaceutical (Gastroenterology), etc.
Dividends: No

While the healthcare sector in Canada is dominated by Cannabis, there are quite a few pharmaceutical companies as well, and the most dominant among them is Bausch.

Currently, Bausch is a mere shadow of its former self. Some scandals shot the company down from the heights it was soaring at, but it still retains a powerful market position.

Two of the underlying companies are leaders in their respective spaces, i.e., Bausch + Lomb is one of the four of the world’s largest suppliers of contact lenses, and Salix Pharmaceuticals is the world’s largest gastroenterology-focused specialty pharmaceutical company (based in the US).

Another fact that makes it a cherished value stock is that its yearly revenue is usually higher than its market capitalization.

And its operational facilities (and supply chain elements) make up for a massive asset base.

8. Lightspeed Commerce Stock

Ticker: LSPD
Sector: Tech  
Industry Niche: E-commerce/POS
Dividends: No

Another e-commerce company that’s brutally undervalued is Lightspeed. It’s suffering alongside the broader e-commerce market as a whole and from a report that specifically targeted some discrepancies in the Lightspeed claims, which alienated a lot of investors.

However, the company still has an impressive presence, and the current price doesn’t reflect its true value.  

The company is served about 119,000 locations in around a hundred countries, which is a significant increase from its 2019 and 2020 numbers (49,000+ and about 76,500 locations, respectively).

And if that number starts rising year by year, the revenues will as well, and eventually, the cash flow will become relatively healthy. But by then, it might be too late for the valuation discount.

9. Canfor Stock

Canfor Stock

Ticker: CFP
Sector: Materials    
Industry Niche: Lumber, pulp
Dividends: No

Canfor has two business wings – lumber and pulp, and a decent number of facilities for the processing and production of the two.

Its facilities include sawmills, processing plants, pellet manufacturing facilities, pulp mills, and even a biomass green energy facility.

The company has a decent operational base and an impressive presence in the market, and thanks to its focus on lumber which is generally accepted as a more environmentally feasible construction material compared to concrete, the company is likely to see demand rise in the future (better cash flows).

Considering all this, the company is quite undervalued, especially from a book value perspective.

10. NFI Group Stock

NFI Group Stock

Ticker: NFI
Sector: Industrials   
Industry Niche: Zero-Emission Buses (ZEBs)

Dividends: Yes

Winnipeg-based NFI Group is one of the largest manufacturers of environmentally friendly Zero-Emission Buses (ZEBs) in North America and has the largest production capacity in North America and UK (over 8,000 units a year).

The main strength of its products is that they can be fitted for different fuel sources, ranging from clean diesel to electric fuel cells.

It also has the number one market share in five different segments, including North American heavy-duty transit and UK aftermarket parts. This is a major early bird advantage.

Considering its production capacity and market leadership, the value it’s trading at is quite heavily discounted.

11.  Aurora Cannabis Stock

Aurora Cannabis Stock

Ticker: ACB
Sector: Healthcare    
Industry Niche: Medical and recreational marijuana
Dividends: No

Aurora Cannabis is one of the many fallen marijuana giants in Canada, and this one perhaps fell the hardest.

But even though it lost a lot of investor confidence and market capitalization, its asset base is still quite solid. It has three production facilities in Canada and one in Europe.

And two out of four facilities are EU GMP certified. The total production capacity is roughly 74,500 kilograms per year.

It also has three separate research facilities. It has dominance in the medical marijuana sector in Canada, and thanks to the brands it has consolidated under its banner, the recreational portfolio is growing at a powerful pace as well.

The current price/value is a fraction of what it can become in the future.

How To Buy Value Stocks In Canada

The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:

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To learn more, check out my full breakdown of the best trading platforms in Canada here.

Conclusion

Best Value Stocks In Canada

The best value stocks in Canada are a pool that’s always changing, mostly because of price fluctuations and sometimes due to revenue/earnings spikes.

Even if you find it difficult to calculate an accurate intrinsic value for a stock, sticking to metrics like P/B and P/E might help you identify the best value stocks that you can hold long-term for decent gains.

If value investing is not a conservative enough strategy for your risk tolerance, the best defensive stocks in Canada might be more to your liking.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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