7 of the Top Canadian Value Stocks to Buy in December 2024

Value investing is one of the most popular investment strategies of all time. Many of the most successful investors, such as Benjamin Graham and Warren Buffett, are value investors.

Unlike growth investing, which is a strategy directed at paying a higher premium now for growth in the future, value investing addresses inefficiencies in the stock market. It allows investors to buy stocks at a discount to their “intrinsic value,” which is related to the future cash flow the investment is expected to produce.

As mentioned, this is different than a growth stock and growth companies in general, as investors are generally speculating on future profitability that has not come to fruition. Many popular stocks like Amazon, Tesla, Alphabet, and Apple are growth stocks, even with Apple paying dividends.

I won’t get into the intricacies of discounted cash flow analysis. However, this article will identify some of the most promising Canadian value stocks.

On this list, we want Canadian stocks trading at strong valuations relative to their future growth, a more extended outlook than other short-term strategies such as day trading stocks.

With that said, let’s get started. Keep in mind these stocks are in no particular order.

What are the best value stocks in Canada right now?

Manulife Financial (TSE:MFC)
Canadian Natural Resources (TSE:CNQ)
BRP Inc (TSE:DOO)
Tourmaline Oil (TSE:TOU)
Gildan Activewear (TSE:GIL)
Parkland Fuels (TSE:PKI)
Canadian Tire (TSE:CTC.A)

Manulife Financial (TSE:MFC)

Since Manulife Financial (TSE:MFC) slashed its dividend during the financial crisis, this stock has been stuck in value mode. The company is one of the country’s largest life insurance and wealth management companies, with a market cap of over $48B.

The primary driver for its growth has been its Asia segment, which continually expands and offers new services. However, the pandemic and lockdown-related issues have slowed growth in that region.

While the company has rebounded, it is still very attractively valued. At the time of writing, Manulife is trading less than nine times its forward earnings and has a price-to-earnings to growth (PEG) ratio below one. This is a clear sign that the company’s share price is not keeping up with expected growth rates.

It has all of the components of a value stock baked into it. The sentiment from a past dividend cut has this one in long-term value mode. It will be interesting to see if it can continue its break out.

Canadian Natural Resources (TSE:CNQ)

Despite a meteoric rise in price post-pandemic, Canadian Natural Resources (TSE:CNQ) still comes up in most screeners searching for value stocks. This is likely because the company is a cash flow machine. A breakeven price in the $30 per barrel range can push out profits in almost any economic situation.

Because of the considerable rise in oil prices in 2021 and 2022, with that strength being maintained over the past couple of years, most analysts expect a downgrade in Canadian Natural earnings.

However, despite the anticipated decline in earnings, the company is still trading at attractive valuations. It is undoubtedly one of the top-value stocks here in Canada.

The company has generated over $15B in cash flow annually and has a market cap of just over $100B. If Canadian Natural were in virtually any other industry besides oil and gas, it would be trading at a significantly higher multiple concerning its free cash flow.

However, because of the continued bearish sentiment in the oil and gas sector, it trades at a discount compared to the company’s quality.

Canadian Natural Resources also has one of the best dividend payouts of any stock on this list. Its quarterly dividend was recently raised to $1.05 per share, which gives this dividend stock a yield close to 4%.

Not only that, since the company recently met its leverage targets, management intends to return 100% of free cash flow to shareholders via buybacks and dividends, the latter likely to come in the form of special dividends.

BRP Inc (TSE:DOO)

BRP Inc., or Bombardier (TSE:DOO), as most consumers would recognize it, is one of the world’s largest recreational vehicle manufacturing companies. It has a dominant market share not only in North America but globally.

Have you ever heard of brands like Can-Am, Seadoo, and Skidoo? You likely have, which makes BRP a strong option in the recreational vehicle market. The company was a spin-off from Bombardier Inc. in 2003.

The company’s recreational vehicle department was sold off in a move that would end up being strong, as BRP Inc. has been an outstanding performer for decades.

The recreational vehicle craze was expected to die off in a higher interest rate and post-pandemic environment. As such, many investors have been selling off Bombardier in anticipation of falling earnings.

However, the company has performed exceptionally well outside a pandemic/lockdown-type environment. It shows no signs of slowing down, even with a potential recession coming in 2024.

As a result, it is trading at a high single-digit price-to-earnings ratio despite growing those earnings at a double-digit clip.

Tourmaline Oil (TSE:TOU)

Despite oil being in Tourmaline’s name, it produces little oil. Tourmaline Oil (TSE:TOU) is one of the largest natural gas producers in North America.

With natural gas expected to remain high, earnings expectations for Tourmaline are also likely to be strong. The company is expected to post earnings per share of nearly $8.50 in 2024.

At the time of writing, this puts the company at a high-single-digit forward price-to-earnings ratio and a low double-digit price-to-free cash flow ratio.

Considering the company has a strong leverage profile, with a long-term debt of $1.1B on revenue of nearly $7B, it should be in a solid position to continue raising the dividend and even giving out special dividends to shareholders.

Obviously, with commodities, the overall trajectory of these companies can vary wildly because of fluctuating earnings. However, a lot of it is already priced in.

Tourmaline should be able to generate a significant amount of free cash flow for investors over the next few years, and long-term holders should be rewarded.

Gildan Activewear (TSE:GIL)

Gildan Activewear (TSE:GIL) is a vertically integrated designer and manufacturer of basic apparel, including T-shirts, underwear, socks, and hosiery.

Gildan is primarily a producer and distributor of athletic-based apparel, and the COVID-19 pandemic hit the company exceptionally hard. Revenue fell from $3.7B in 2019 to just $2.6B in 2020.

It has since rebounded in revenue, but since a dividend suspension in 2020, investor sentiment has yet to return.

Even though I don’t blame the company for the dividend suspension due to the circumstances, the market tends to punish companies that cannot maintain the dividend regardless.

Because of this, it is trading at relatively attractive valuations. With a low-double-digit forward price-to-earnings ratio and low-2% dividend yield at the time of writing, Gildan is undoubtedly a valuable option if you’re looking for exposure to a reliable retailer in Canada.

We aren’t the only ones looking at GIL as a value play. The company has received an unsolicited expression of interest to acquire it. It has since struck a committee to look at a potential sale.

Parkland Fuels (TSE:PKI)

Parkland Fuels (TSE:PKI) was among the best-performing stocks on the Toronto Stock Exchange before the COVID-19 pandemic and rising interest rates.

The company does have some issues concerning debt levels, but nothing it hasn’t navigated before.

Parkland Corp distributes and markets fuels and lubricants. Refined fuels and other petroleum products are among the variety of offerings the company delivers to motorists, businesses, consumers, and wholesalers in the United States and Canada.

The company used leverage to fuel substantial acquisitions in the pre-pandemic low-rate environment. However, the market has now soured on companies in poor debt situations. This has left Parkland trading near a 30% discount to its historical averages and a low, double-digit price-to-earnings ratio.

This one does have a bit of risk built in, especially considering the company’s leverage ratio is 2.8x in a high-rate environment and possible recession. The good news is that the ratio has been dropping steadily over the past couple of years.

Despite the many headwinds, it continues to put up strong results as it has been. The market has begun to recognize this, with shares up more than 61% over the last year as of press time. However, the stock is still cheap even after this run-up, trading at less than ten times forward free cash flow.

Canadian Tire (TSE:CTC.A)

Retailers tend to get hit the most when recessions are expected, especially those with high debt levels. Canadian Tire (TSE:CTC.A) fits this mould, but I’m not worried about its sales or supply chain during a recessionary environment or even its debt levels.

The company is a staple for most Canadians in terms of tools and household items. With its acquisitions of companies like Sport Chek and Helly Hansen, it owns some of the strongest brands in the country.

Historically, it has done an excellent job getting people inside their brick and mortar stores.

During the pandemic, it significantly accelerated the growth of its e-commerce segment, which should accelerate earnings growth even more in the future.

Earnings took some step back in 2023 as the company dealt with a weaker consumer and other problems, like a fire at one of its warehouses. Earnings are expected to recover in 2024 and 2025, with shares currently trading at nine times 2024’s earnings. The recession seems to be priced into Canadian Tire for the most part.

The company’s dividend yield is now above 5% due to the price selloff. The company is a Canadian Dividend Aristocrat, having raised the dividend for 13 straight years.

Overall, these are some of the best Canadian stocks when it comes to value.

There have recently been many more value stocks on the TSX composite index, mainly due to economic circumstances. However, these are certainly some of the best.

They have attractive price-to-earnings ratios and solid fundamentals. You can add stocks to your watchlist to develop a diversified portfolio of reliable companies.

There is a nice mix on this list as well. Although there may be multiple attractive opportunities on the TSX today, I decided to switch it up and include financials, oil and gas, retailers, and more.

What is value investing?

As mentioned, this is different than something like a growth stock and growth companies in general, as investors are generally speculating on future profitability that has not come to fruition. Many popular stocks like Amazon, Tesla, Alphabet, and Apple are considered growth stocks, even with Apple paying a dividend.

What criteria must be met to make it on this list of top Canadian value stocks?

Value and “cheap stocks” are entirely subjective. Depending on a company’s future outlook, you may have a completely different price target than an analyst or friend.

You may think a company like Microsoft is high-quality, while an analyst might be bearish. That is the fantastic thing about investing. Price predictions for individual stocks are based on outlook, and outlook is based on personal opinions.

But for this list of Canadian value stocks, we’ll have some criteria we follow regarding metrics. They must trade at an attractive price-to-earnings or price-to-free cash flow ratio, often below historical valuations and the industry average. A low price to book, or P/B ratio, is also helpful. However, we’d consider a low PE ratio to be more critical.

There will also need to be earnings and sales growth. Many stocks will be considered value options because of a decline in stock price and a high dividend yield. However, an earnings decline or a material shift in the overall business could be the reason for the decrease in share price and that high yield.