Five Canadian value stocks to watch

Finding stocks that the market has ignored or doesn't understand is the holy grail for investors. Here are some to investigate

Five Canadian value stocks to watch

The S&P/TSX Composite Index has enjoyed a strong 2021 as it bounced back from the crash of March 2020. Seemingly hitting new highs on a regular basis, it has consistently traded above 20,000 points.

But is there any value left to be discovered? The onus is on investors to find stocks that the market has ignored or does not understand. Buy good companies that are undervalued, hold them, and wait for the market to come around. Easy, right?

Here are five top Canadian stocks that might fit this bill.

1, Suncor Energy


Energy stocks have been on a tear this year but Suncor Energy has largely lagged its benchmark peers. Some analysts believe it appears the market is still punishing it for its dividend cut last year.

The company has been cutting costs, reducing debt, and re-focusing operations on higher-capital-returning projects. In line with modern trends, it’s also increasing its exposure to renewables and clean energy.

A renewed focus on “value over volume” is paying off. It has reduced its cash flow breakeven cost to below $30 per barrel. With oil over $70, it is producing a huge amount of free cash flow and that’s before you get to its 2.8% dividend.

2, Algonquin Power


Since February, the attention and support for renewables stocks appears to have declined. The company was hit by the extreme Texas weather events in that same month and it missed its earnings estimates. The stock, therefore, has lagged.

This should be the time to buy. It’s an attractive, diverse, highly regulated utility and renewable power business. It’s targeting annual earnings-per-share growth of 8-10% for at least the next four years, and the stock pays a growing 4.4% dividend.

3, Andrew Peller


Thirsty for value? Willing to be patient? Then Andrew Peller is a very undervalued Canadian stock – and one of the country’s largest producers of wines and spirits. For example, Wayne Gretzky wine and whisky is one of its top brands.

The company has obviously faced some temporary challenges. Notwithstanding the pandemic, consumers have also preferred lower margin value beverages during that time. However, economies are reopening and people are returning to dining and traveling. It follows that people will rediscover their taste for premium and ultra-premium beverages.

The stock pays a 2.4% dividend and has a price-to-earnings ratio of 14 times. Most industry peers are trading at over 20 times.

4, Air Canada


A headline stock, Canada’s largest airline lost more than 70% of its value in little over a month as the travel industry was decimated by the pandemic and swaths of grounded planes.

While its future – and that of the industry – was (not!) up in the air, the demand for air travel is returning. People are desperate to travel and COVID-19 restrictions are loosening.

Only time will tell as to the lasting legacy of the pandemic, but Air Canada has been on fire with shares doubling since March 2020 and outpacing the market’s returns year to date. In short, there is plenty more runway in this recovery.

5, Sun Life


With a market cap of nearly $40 billion, Sun Life is the second-largest insurance provider in Canada. However, its customer base expands far beyond the country.

With an impressive 3.5% dividend yield, its growing Asian presence is reason to be bullish, and over the past decade it has largely outperformed the S&P/TSX Composite Index.

Crucially, it provides value and stability, while insurance should provide longevity. Sun Life was trading at an attractive forward price-to-earnings ratio below 10 right now. Considering its past performance, a bargain.