Value investing: finding undervalued stocks
Value investing is an investment strategy that relies on finding stocks that are trading below their true value. It’s an attractive strategy because, if done right, investors can buy shares at a discount. Sometimes these discounts are deep. The rewards can be very meaningful, but value investing requires conviction, courage and, above all, patience.
But as with everything, there is always a risk. The risk here is that what we think is mispriced sometimes turns out to be rightly priced and actually a trap. However, in a well-diversified portfolio, these measured risks should be worth it over time.
B.C
B.C (TSX:BCE) is one of Canada’s leading telecommunications companies. It’s also one of Canada’s biggest disappointments in recent years. In fact, what was once considered one of the safest stocks on the TSX has fallen a shocking 47% over the past three years. So the question is: is BCE stock an undervalued Canadian stock to buy or stay away from? Let’s take a look at this.
The telecom giant has a lot to offer. The first is that BCE’s sector is a very defensive telecommunications industry. Simply put, consumers “need” BCE products and services. This is one of the last expenses to be cut in tough times, and it is extremely difficult, with recurring revenues and cash flows.
But as you know, BCE and its stock have fallen on hard times. This all came to a head in May 2025, when BCE cut its dividend by 56%. Today, after some very difficult quarters of declining sales, profitability and profits, things are looking good again. The company has taken some real steps to strengthen its balance sheet, reduce debt and reignite growth. These steps include layoffs, divestitures and pursuing different growth paths.
In BCE’s third quarter, the company posted a 1.3% increase in revenue, a 5.3% increase in adjusted earnings per share (EPS) and operating cash flow of $1.9 billion, up 3.9% year-over-year. BCE shares are trading at undervalued prices today: 13 times this year’s expected earnings, a 5.3% yield and 1.6 times book value. The dividend payout ratio has stabilized, just like the shares.
C.G.I
CGI Inc. (TSX:GIB.A) is one of Canada’s leading information technology giants. And it’s another undervalued Canadian stock you can buy now. It currently trades at less than 15 times earnings. But given CGI’s long history of earnings growth and creating shareholder value, I believe CGI stock is undervalued.
As you can see in the CGI stock price chart below, the stock has been a stable performer for years. This reflects the company’s steady and reliable growth over the years. The company has truly transformed itself into a global leader, with diversified operations across the region and industry.
It’s the kind of diversification that should normally deliver premium multiples. Yet CGI is consistently underrated in my opinion. In the company’s last quarter, the fourth quarter of 2025, revenue rose 9.7% to $4.01 billion. Adjusted earnings per share also rose 10.9% year-over-year and operating cash flow reached $663 million, or 16.5% of revenue.
It is a highly cash-generative company that looks forward to a bright future. This is evident from CGI’s book-to-bill ratio of 119.2% and its order book of $31.45 billion, or twice turnover.
The bottom line
The undervalued Canadian stocks discussed in this article have strong risk/reward profiles and a high probability of being revalued at higher multiples that better reflect their true value.
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