Canadian value stocks are among the most intriguing opportunities in the global equity markets today. Trading at a substantial discount to their U.S. peers, they are an agreeable mid-point between the priciness of U.S. equities and the perceived risk of non-North American markets. In Canadian sectors like banking, energy and insurance, it is quite possible to find players with entrenched competitive positions and price-to-earnings ratios well below 10. In this article, I’ll share how I’d allocate $12,000 across Canadian value stocks for retirement planning.
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Banks
First up, we have banking. Canadian bank stocks are typically considered value stocks, and most of the time, they trade at 10 times earnings or less. A major rally in Canadian bank stocks has made them, as a class, pricier than they normally are. However, there are still some TSX banks that are real value opportunities.
Consider Toronto-Dominion Bank (TSX:TD), for example. It trades at 10.8 times earnings today, making it cheaper than both its Canadian and American big bank peers. The company’s stock got cheap for a reason (a fine and asset cap in the U.S. retail segment), but the damage from those measures has largely been done. The fine has been paid, and the asset cap, while still in place, has facilitated a large and, so far, very lucrative buyback program. It’s arguably been a blessing in disguise. In the meantime, TD Bank remains solidly profitable and is seeing great earnings results in its Canadian retail and U.S. investment banking segments. On the whole, it is a compelling buy.
Energy
Canadian energy is a sector in which great bargains can be found. Many top Canadian energy companies trade at 10 times earnings or less, and although oil prices have fallen somewhat this year, the fundamentals in the oil market remain sound.
Consider Suncor Energy (TSX:SU), for example. It’s a Canadian integrated energy company that trades at just 9.2 times earnings. The company is involved in extracting, refining and marketing crude oil. It also operates the Petro-Canada gas station chain.
Suncor is well known for its strong market position in Canada. Its gas station chain is one of the best known in the country, and its other operations are also well entrenched in Canada’s oil and gas landscape. It does face some risks from Donald Trump’s energy tariffs but those tariffs (10%) are lower than those Trump placed on Canadian goods generally. So, SU should probably fare fine as long as oil prices hold up.
Foolish takeaway
The bottom line on Canadian value stocks is that many of them remain appealing buys today. Sure, there is risk with Trump and his tariff policy, but with elevated risk comes elevated potential returns. If you buy Canadian stocks today, you can get companies that are, in many cases, of comparable quality and no greater risk than their U.S. counterparts. That’s a pretty compelling picture if you ask me; the fact that Canadian companies are generally much cheaper is just icing on the cake. If you’re wondering how I’d invest $12,000 in Canada’s resilient market, the two stocks mentioned above will give you some idea.
