In this article, we will be taking a look at 10 cheap Canadian stocks to buy. To see more of these stocks, you can go directly to see the 5 Cheap Canadian Stocks to Buy.
Near the end of 2022, recession talk was spiking in both the US and Canada, with the markets seized with inflation insecurity. Resultantly, demand for major goods was expected to stagnate for a relatively long period. Economic growth in Canada was slow but present in 2022, yet the country remains among those that are performing well economically. As we mentioned in one of our previous articles, in 2022, the nominal gross domestic product of the country was worth $2.2 trillion, ranking 15th across the world.
Canadian Economic Growth in 2022 and Beyond
According to a report published by the Toronto-Dominion Bank (NYSE:TD) in December, the Canadian economy recorded growth of about 3% in the third quarter. While employment in the country is expected to rise heading into 2023, higher inflation and rising interest rates are expected to decrease demand. Between September and December, average prices in the Canadian housing market also fell by 22% from their peak, shedding a brighter light on this sector. And when it comes to inflation, it was noted that Canada is faring a bit better than the US. The report forecasted that core inflation in the US is expected to average 4.7% in 2023, while in Canada, it is expected to be about one percentage point lower. All in all, while the economic forecast for the country is not overwhelmingly positive, it demonstrates resilience and hope for 2023.
At the start of 2023, consumer price index (CPI) inflation in Canada was noted to still be high. However, it was also seen to have declined from its peak. The major trends enabling this decline included lower energy prices, improvements in global supply chains, and the effects of higher interest rates in the economy. According to the Bank of Canada's Monetary Policy Report published in January, CPI inflation is expected to fall to 3% by the mid-point of 2023, enabling it to return to the 2% target in 2024.
Favorable Environment for Canadian Stocks
While the slow economic growth and high inflation have resulted in recession fears and falling stock prices, when it comes to the Canadian market, domestic stocks are benefitting from the environment relative to foreign stocks. When compared to American stocks, Canadian stocks such as Bank of Montreal (NYSE:BMO) and Suncor Energy Inc. (NYSE:SU) and considerably cheaper. According to a report published by SEI Investments Company in 2022, between 2003 and 2022, the forward price-to-earnings (P/E) ratio of Canada's S&P/TSX Composite Index has mostly stayed below that of the US S&P 500 Index. In September 2022, the P/E ratio for the former was just over 10, while that of the latter had spiked up to over 15. This trend has resulted in Canadian equities remaining attractively valued for decades.
Generally, the sectors that perform well in inflation include energy, consumer discretionary, materials, industrials, and financials. The fact that 78% of the S&P/TSX Composite Index is made up of these sectors thus indicates that Canadian equities are generally inflation-resistant. Conversely, it has been noted that these sectors only make up about 40% of the Russell 1000 Index measuring large US companies. This comparison thus highlights further how Canadian stocks may act as better investments today. Considering these factors, we have compiled a list of cheap Canadian stocks to buy.
10 Cheap Canadian Stocks To Buy
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Let's now take a look at the 10 cheap Canadian stocks to buy
Our Methodology
To compile our list below, we selected Canadian stocks which have a significant upside potential based on average analyst price targets. Strong price targets of these stock show Wall Street analysts believe these stocks are trading cheap and have more room to run.
TELUS Corporation (NYSE:TU) is a communication services company based in Vancouver, Canada. It provides telecommunications and information technology products and services.
Sebastiano Petti holds an Overweight rating on TELUS Corporation (NYSE:TU) shares as of February 13.
As of April 2, TELUS Corporation (NYSE:TU) was trading at an EV/Revenue multiple of 3.5.Analysts on Wall Street have placed an average price target of $22.84 on the shares, with a high forecast of $24.4. TELUS Corporation (NYSE:TU) shares were trading at $19.86 on April 2, so the price target gives it an upside potential of 15.01%.
Schonfeld Strategic Advisors was the largest shareholder in TELUS Corporation (NYSE:TU) at the end of the fourth quarter, holding 3.6 million shares. In total, 17 hedge funds were long the stock, with a total stake value of $255 million.
TELUS Corporation (NYSE:TU), like Bank of Montreal (NYSE:BMO), Toronto-Dominion Bank (NYSE:TD), and Suncor Energy Inc. (NYSE:SU), is a Canadian stock that is highly popular among hedge funds today.
Canadian Imperial Bank of Commerce (NYSE:CM) is a diversified banking company based in Toronto, Canada. The company offers checking, savings, and business accounts, among more.
BMO Capital analysts hold an Outperform rating on Canadian Imperial Bank of Commerce (NYSE:CM) shares as of February 27.
In its annual report for 2022, Canadian Imperial Bank of Commerce (NYSE:CM) reported a return on equity capital of 14%. The stock has a P/E ratio of 10.55, and analysts have placed an average price target of $49.31 on the shares, which were trading at $42.42 on April 2. This gives Canadian Imperial Bank of Commerce (NYSE:CM) shares an upside potential of 16.24%.
There were 11 hedge funds long Canadian Imperial Bank of Commerce (NYSE:CM) in the fourth quarter, with a total stake value of $95.1 million.
ClearBridge Investments, an investment management firm, mentioned Canadian Imperial Bank of Commerce (NYSE:CM) in its first-quarter 2022 investor letter. Here's what the firm said:
“We increased our financials exposure with four new additions during the quarter. Canadian Imperial Bank of Commerce (NYSE:CM), which should benefit from a consolidating bank market and higher rates as Canada catches up with the U.S. in terms of reopening and GDP growth recovery.”
Enbridge Inc. (NYSE:ENB) is an energy company providing crude oil and other liquid hydrocarbons, among more. It is based in Calgary, Canada.
On March 29, shares of Enbridge Inc. (NYSE:ENB) were upgraded from Underperform to Neural by Credit Suisse analysts.
Enbridge Inc. (NYSE:ENB) is a stellar dividend stock with a yield of 6.98% as of April 2. The company has raised its yield for the past 28 years, making it a highly reliable dividend stock. Alongside this, the stock is undervalued considering its EV/Revenue multiple of 3.66. Analysts on Wall Street have placed an average price target of $45.35 on Enbridge Inc. (NYSE:ENB) shares, with a high forecast of $55.
Out of the 21 hedge funds long Enbridge Inc. (NYSE:ENB) in the fourth quarter, GQG Partners was the largest shareholder in the company, holding 63.7 million shares. The total stake value in the company was $2.6 billion.
Sun Life Financial Inc. (NYSE:SLF) is a life and health insurance company based in Toronto, Canada. The company provides savings, retirement, and pension products globally.
John Aiken, an analyst at Barclays, holds an Overweight rating on Sun Life Financial Inc. (NYSE:SLF) shares as of February 27.
Sun Life Financial Inc. (NYSE:SLF) has a P/E ratio of 10.05 and an EV/Revenue ratio of 2.13, both of which are low enough to consider the stock undervalued. The company's average P/E ratio as of this December was 13.1, making its current ratio lower than the average. Analysts have an average price target of $56.5 on Sun Life Financial Inc. (NYSE:SLF) shares, with a high forecast of $73.
Nine hedge funds were long Sun Life Financial Inc. (NYSE:SLF) in the fourth quarter. Their total stake value was $225 million.
Manulife Financial Corporation (NYSE:MFC) is another life and health insurance company on our list. It is based in Toronto, Canada.
John Aiken at Barclays holds an Overweight rating on Manulife Financial Corporation (NYSE:MFC) shares as of February 27 as well.
On valuation, Manulife Financial Corporation (NYSE:MFC) has a P/E ratio of 7.76 and an EV/Revenue multiple of 3.66. The average price target placed on the shares by analysts is $22.24, while Manulife Financial Corporation (NYSE:MFC) was trading at $18.36 on April 2. This gives the stock an upside potential of 21.13%.
Galibier Capital Management was the largest shareholder in Manulife Financial Corporation (NYSE:MFC) at the end of the fourth quarter, holding 2.6 million shares. In total, 10 hedge funds were long the stock. The total stake value in the company was $118 million.
Manulife Financial Corporation (NYSE:MFC), like Bank of Montreal (NYSE:BMO), Toronto-Dominion Bank (NYSE:TD), and Suncor Energy Inc. (NYSE:SU), is a Canadian stock with immense upside potential according to analysts today.
