10 Cheapest Canadian Stocks

These companies are the most undervalued right now but fair warning, they have earned their uncertainty ratings.

Andrew Willis 6 October, 2021 | 2:30AM
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Persisting uncertainty around inflation rates, debt ceilings and the health of the international economy has made stock picking a challenge recently, with many investors making the classic move to value stocks. After the recent market routs, we’re curious about how the biggest discounts in our stock universe are faring. Were prices beaten down further? Did they hold their own – or perhaps outperform in this latest market cycle?

A look at the 10 cheapest Canadian stocks in our universe illustrates well the relationship between risk and potential reward:

Name

Price / Fair Value

Fair Value Uncertainty

Economic Moat

Canopy Growth Corp (WEED)

0.46

Very High

None

CNOOC Ltd ADR (CNU)

0.48

Very High

None

Curaleaf Holdings Inc (CURA)

0.50

Very High

None

Green Thumb Industries Inc (GTII)

0.50

Very High

None

Tilray Inc (TLRY)

0.55

Very High

None

Aurora Cannabis Inc (ACB)

0.67

Extreme

None

Newcrest Mining Ltd (NCM)

0.77

High

None

Cronos Group Inc (CRON)

0.79

Very High

None

Kinross Gold Corp (K)

0.80

Very High

None

Air Canada Class B (AC)

0.83

Very High

None

Source: Morningstar Direct, October 1, 2021

One stock that loves to stand out from the crowd is Canopy Growth Corp (WEED) with a whopping 5-year beta of 2.13 as of Oct 1, 2021. On many days, WEED has stood out on the Morningstar Canada heatmap as one of the leading outperformers in red or volatile days. But Canopy’s performance over the past year has mostly been a steady decline since February, underperforming alongside the broader cannabis industry. It has a strong catalyst ahead with a potential U.S. market entry through the acquisition of Acreage Holdings (ACRG.B.U) – but it depends on U.S. federal legalization, hence the high uncertainty rating. If legalization does happen in the U.S., sector director Kristoffer Inton forecasts growth of roughly 12% per year in recreational cannabis volume in a market many times the size of Canada.

One stock that isn’t technically Canadian but fits in terms of uncertainty is CNOOC (CNU), which produces offshore oil for China at an all-in cost of 30 US dollars a barrel. It’s easy to see the potential reward here, but as an oil and gas producer, CNOOC is exposed to commodity price volatility that may significantly affect earnings, says senior equity analyst Chokway Lee. It’s a complicated political environment with risks from U.S. sanctions and the loosening of restrictions at the WTO that once favoured Chinese firms.

Other undervalued Canadian-listed stocks are still growing despite murky legislation, bringing us back to cannabis companies that have established operations within the U.S. before it’s legalized federally. While that political process continues, state legalization has still allowed multi-state operators like Curaleaf (CURA) and Green Thumb Industries (GTII) to continue expanding within states. This perhaps allowed these producers to weather the selloff that Canopy’s seen since February as the Canadian consumer market matures.

The balance of the cannabis companies that unsurprisingly make up so much of our list have earned their spot as they come off their highs of Canadian federal legalization. Looking back three years, Tilray (TLRY), Aurora (ACB) and Cronos (CRON) join Canopy in posting losses overall.

Exhibit 1

Source: Morningstar Direct, October 1, 2021 - Larger Image Available Here

Another foreign-based corporation that shares a flair for uncertainty is Australian-based Newcrest Mining (NCM). Although much of the performance is at the mercy of commodity prices, regional director is Mathew Hodge is cautiously optimistic thanks to profits that are up 53% year on year and a potential second wind for gold prices if COVID uncertainty continues.

But if pandemic worries fade, gold could be in trouble – even before interest rates rise, as they did in the lead-up to the first rate hike since the great recession in December 2015, notes Kristoffer Inton. In discussing the outlook for a Canadian gold producer, Kinross Gold (K), he added, “Today’s investment demand is tomorrow’s supply, as investors will eventually sell their holdings.”

Lastly, an article about uncertain stocks with high potential upside wouldn’t be complete without an airline company trying to take off again after a pandemic. Air Canada (AC) is highly dependent on international travel and layovers for U.S. travellers. “Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers,” says Burkett Huey, adding that he expects Air Canada will eventually participate in the recovery of business travel, but he’ll need to see more progress on global vaccine distribution.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Air Canada Class B23.07 CAD0.57Rating
Aurora Cannabis Inc8.70 CAD-3.23Rating
Canopy Growth Corp16.52 CAD-2.65Rating
CNOOC Ltd ADR140.00 CAD0.00Rating
Cronos Group Inc6.77 CAD-1.60Rating
Curaleaf Holdings Inc13.10 CAD-1.95Rating
Green Thumb Industries Inc29.45 CAD-1.83Rating
Kinross Gold Corp7.57 CAD-0.66Rating
Newcrest Mining Ltd22.40 CAD-0.88Rating
Tilray Inc12.68 CAD-1.55Rating

About Author

Andrew Willis

Andrew Willis  is Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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