The good news is that the Canadian stock market offers plenty of value opportunities that investors can exploit under the radar. Here are three of my best ideas in this market right now and why they could outperform in the long term.
Air Canada
Air Canada (TSX:AC) remains Canada’s largest airline and an integral part of Canada’s industrial sector.
The airline’s stock chart looks like a heartbeat, with peaks and valleys everywhere. It’s the peaks and valleys in this chart that may make some investors seasick, and may prompt investors looking for stability and upside to look at other companies.
That said, I believe AC shares are now trading around the midpoint of their five-year range. The stock could be worth a look here. Air Canada’s balance sheet and fundamentals remain strong. And remarkably, this stock is trading at a low of just six times forward earnings.
It is difficult to find a company that is so cheap in today’s market. Those looking for great value can find it with Air Canada (assuming there isn’t another 9/11 or major macro shock looming).
Whitecap Resources
One of the most undervalued oil and gas players in the Canadian market has to be Whitecap Resources (TSX:WCP).
Shares of the Canadian oil and gas company are now trading near their highest levels in the past five years, while energy prices remain stable.
Investors appear to like the company’s strong balance sheet, market positioning and valuation relative to peers. At a valuation of just seven times earnings, a case can be made that this is a stock that could be a takeover target.
That’s actually a primary factor that would be key to my investment thesis in Whitecap at this point. I don’t see such a move as imminent, but anything is possible. And as larger companies look for greater scale and diversification, I think WCP stock could see meaningful upside as M&A activity picks up in the energy sector.
Manulife financial
Last, but certainly not least, on this list of Canadian value stocks to consider right now is Manulife (TSX:MFC).
Shares of the life insurance and asset management giant have been steadily rising as investors look for beaten-down stocks to invest in at this point in the cycle. Insurance giants like Manulife were unfairly hit during the pandemic in large part due to their portfolio construction. By investing heavily in long bonds with ultra-low returns at that time, their profits were under pressure.
However, as Manulife moves into higher-yielding government bonds and other ultra-safe long-term assets, many investors now view such stocks as bond-like proxies.
Personally, I’m bullish on fixed income right now and think insurance companies like Manulife, which trade at just ten times forward earnings, are a great way to trade this trend.
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