Not many stocks look particularly cheap this year. The markets have been rising for over twelve months now and it shows: the multiples continue to rise. Still, there are valuable pockets to be found if you know where to look. In this article, I examine three cheap Canadian stocks that are still waiting to get their start.
Air Canada
Air Canada (TSX:AC) is a Canadian stock that has been cheap for a while, but has still had a nice time rising from its undervalued level to reflect its intrinsic value. In part, this is because the company keeps getting bad news: first, COVID; then the oil price rally in 2022; finally, this year’s flight attendant strike. The COVID pandemic was a real, fundamental problem for Air Canada: it cost the company $4.6 billion in 2020, and billions more in 2021. However, the other problems that have arisen in recent years have been relatively minor. The oil price spike in 2022 increased jet fuel costs, but AC was very profitable that year anyway. Meanwhile, the revenue impact of the flight attendant strike was estimated at $350 million – not that big in the grand scheme of things.
Air Canada is currently undergoing a major capital expenditure (CAPEX) cycle, with approximately $18 billion in CAPEX expected over the next three years. This CAPEX largely consists of purchasing new aircraft, allowing AC to offer more routes. Some investors worry about the sheer amount of spending, but the opportunities here are enormous.
AC shares are by far the worst performers in my portfolio this year, but I’m still happy to stay long. It’s the cheapness that keeps me here.
Suncor Energy
Suncor Energy Inc (TSX:SU) is a Canadian oil-integrated oil company. It is one of the most diversified energy companies in Canada and is active in the exploration, production, refining and operation of gas stations. The company has a fairly high dividend yield, over 4%. While current oil prices (fairly high) don’t portend spectacularly high profits for Suncor, they are enough for the company to stabilize its profits where they are now. With the company trading at around ten times earnings, it could be an undervalued buy.
EQB Inc
EQB Inc (TSX:EQB) is a Canadian bank stock that still has a ‘Canadian bank’ valuation and trades at a modest 9.4 times earnings. While the major Canadian banks have historically traded at prices similar to the EQB, they became pricey this year, thanks to a string of solid earnings results and investors trying to diversify away from technology stocks, which have become very pricey. The company is a branchless bank, which means it has lower overhead costs than most banks. EQB makes for an intriguing purchase.
The bottom line
The ultimate goal of cheap stocks in 2025 is that while they may be rare, they do exist. Especially if you’re willing to look at sectors like banking and energy, you can find value. Some of these cheap stocks haven’t gotten the go-ahead yet. But they’ll probably get it at some point in the future. For a discerning investor, it is important to get in before that happens.
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