If you’ve been watching the TSX lately, you’ve probably noticed something interesting: a growing disconnect between stock prices and underlying fundamentals. Between elevated interest rates, global uncertainty, and sector rotation, several high-quality Canadian companies are trading below what long-term investors would consider fair value. This is where opportunity lives.
Below are five undervalued Canadian stocks that combine strong fundamentals, durable business models, and clear catalysts heading into 2026. As always, we’ll count them down from #5 to #1.
#5 – Magna International Inc. (TSX: MG) — Average Price Target $97CAD
Why Now
The global auto sector is in transition, and that’s exactly where Magna thrives. As EV adoption accelerates and automakers outsource more production, Magna is positioned as a key supplier across both traditional and electric platforms. Recent contract wins and improving supply chains are beginning to stabilize margins after a volatile few years.
The Moat
Magna isn’t just a parts supplier — it’s a full-service mobility platform. Its ability to design, engineer, and manufacture entire vehicle systems gives it deep integration with OEMs. That scale and diversification across geographies and customers create a significant barrier to entry.
Financial Snapshot
Revenue has rebounded to pre-pandemic levels, with annual sales pushing above $40B USD. Margins are still recovering but trending upward as supply chain pressures ease. The company generates solid free cash flow and offers a dividend yield around ~3.3%, supported by a disciplined balance sheet.
One Key Risk
Auto demand is cyclical. If global economic conditions weaken or EV adoption slows, Magna’s volumes — and margins — could come under pressure again.
#4 – Power Corporation of Canada (TSX: POW) — Average Price Target $73CAD
Why Now
Power Corp is one of the most overlooked value plays on the TSX. With exposure to insurance, asset management, and alternative investments, the company is trading at a persistent discount to its net asset value (NAV). As rates stabilize and wealth management inflows improve, that discount could narrow.
The Moat
The strength here is structure. Through holdings like Great-West Lifeco and IGM Financial, Power Corp has a diversified stream of earnings tied to long-term capital allocation businesses. These are sticky, recurring revenue models that perform well over time.
Financial Snapshot
The company maintains strong earnings consistency, with steady dividend growth and a yield around ~3.8%. Its balance sheet is conservatively managed, and management has increasingly focused on simplifying the corporate structure — a move that could unlock value.
One Key Risk
Conglomerate discounts can persist longer than expected. Even with solid underlying businesses, the market may continue to undervalue the structure.
#3 – Canadian Natural Resources Limited (TSX: CNQ) — Average Price Target $67CAD
Why Now
Energy continues to be a cash flow machine in 2026. Even with oil prices stabilizing, CNQ remains one of the most efficient operators in North America. Its low-cost assets and disciplined capital allocation mean it can generate strong returns even in moderate pricing environments.
The Moat
Scale and efficiency. CNQ operates some of the lowest-decline, longest-life assets in the oil sands. That allows for predictable production and lower reinvestment costs compared to peers — a huge advantage in volatile commodity markets.
Financial Snapshot
The company is generating massive free cash flow, much of which is returned to shareholders through dividends and buybacks. Dividend yield sits around ~3.9%, with a long track record of increases. Debt levels have been reduced significantly over the past few years.
One Key Risk
Commodity exposure. A sharp drop in oil prices would directly impact cash flow and investor sentiment, even for a best-in-class operator like CNQ.
#2 – Shopify Inc. (TSX: SHOP) — Average Price Target $192CAD
Why Now
Shopify has quietly transitioned from a high-growth, unprofitable tech name into a more disciplined, margin-focused business. With cost restructuring largely complete and revenue growth stabilizing, the market is beginning to reassess its valuation.
The Moat
Shopify owns the backbone of independent e-commerce. Its ecosystem — payments, logistics, storefronts, and integrations — creates a powerful flywheel. Switching costs for merchants are high, and the platform continues to expand globally.
Financial Snapshot
Revenue growth remains strong (mid-20% range), with improving operating margins as efficiency initiatives take hold. The company holds a strong cash position and minimal debt, giving it flexibility to reinvest in growth.
One Key Risk
Valuation sensitivity. Even after its pullback from peak levels, Shopify still trades at a premium relative to traditional metrics. Any slowdown in growth could lead to volatility.
#1 – Bank of Nova Scotia (TSX: BNS) — Average Price Target $106CAD
Why Now
Scotiabank is one of the most out-of-favour names among Canada’s Big Five banks — and that’s exactly why it stands out. Concerns around international exposure and slower earnings growth have pushed its valuation to historically low levels. But markets often overcorrect.
The Moat
Like all Canadian banks, Scotiabank benefits from an oligopolistic domestic market with high barriers to entry. Its international footprint — particularly in Latin America — adds growth potential that most peers lack.
Financial Snapshot
BNS is currently offering a dividend yield in the ~4.3% range, one of the highest among major Canadian banks. While earnings growth has been slower, capital ratios remain strong, and the bank continues to generate consistent income.
One Key Risk
Execution risk in international markets. Economic instability or currency fluctuations in key regions could impact earnings more than domestically focused peers.
Final Thoughts
The TSX in 2026 is shaping up to be a stock picker’s market.
You’re seeing a mix of cyclical recovery plays (Magna), deep value conglomerates (Power Corp), cash flow machines (CNQ), re-rated growth names (Shopify), and beaten-down blue chips (Scotiabank). That kind of diversity is exactly what long-term investors should be paying attention to.
Over the next 12 months, focus on three things:
- Interest rate direction and its impact on financials and valuations
- Commodity stability, especially in energy
- Earnings quality, not just growth
The common thread across all five stocks? They’re not broken — they’re simply misunderstood or temporarily out of favour. And historically, that’s where the best returns tend to come from.
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