We researched hundreds of Canadian companies to determine whether they are fit for defensive investors. Out of those, here are eight that we found to be undervalued or fairly valued to be suitable for value investors.
1. WestJet Airlines:
The airline industry is a cyclical market. Like for car companies, there are some good and some bad times for airlines. We, as an investor, are trying to find good times and avoid the bad. The industry closely tracks with the overall economy. People are going to fly to places if they are earning good money and have extra income. On the other hand, people choose to stay local or spend more time traveling in the car when the economy is weak.
A company like WestJet (TSE: WJA) can be difficult to time the entrance and exit truly. People are flying on WestJet or Air Canada plane if they are flying from Calgary or Montreal to Winnipeg. Both of these airlines know there is little competition and they price their routes accordingly. Our pick, WestJet has a significant advantage over Air Canada. Westjet spends 25% less than Air Canada on a per-mile-flown basis. Also, WestJet has been able to deliver consistent profits and has an excellent dividend growth. Recently, the stock is down mainly due to its exposure to Alberta. Our recommendation is to buy WestJet as long as investors can handle the cycle nature of the company. A few members in our chat group currently hold this stock.
2. Granite Oil
An oil producer based in Calgary, Granite Oil (TSE: GXO) owns and operates Alberta Bakken oil pool in Southern Alberta. The company is currently under the leadership of CEO Michael Kabanuk. Granite Oil is one of the few energy companies to make this list. The company not only escaped the oil and gas sell-off but also it bounced back faster. Even though the company with the recent OPEC agreement spiked nearly 25%, it may still be a good value.
3. Martinrea International:
Martinrea International Inc (TSE: MRE) was founded in 2001 and is a tier one supplier of automotive parts, assemblies, and modules. In terms of revenue, it is the second largest North American metal former. It is also a market leader in aluminum parts.
The stock is available at a considerable discount of around 24% on Friday’s trading price. Of 4 analysts covering Martinrea, 3 rates it a “Buy,” 1 “Hold” and 0 “Sell”. It means 75% of the analysts are positive with $21.5 being the highest target and $13.5 being the lowest.
4. Capital Power:
Capital Power (TSE: CPX) is North American power producer headquartered in Alberta. The company develops, acquires, operates, and optimizes power generation from a variety of energy sources. It owns more than 3,200 megawatts of power generation capacity at 18 facilities across North America.
Capital power generates a huge portion of its electricity from coal-fired plants, and its shares are priced low due to its exposure to coal-fired power in Alberta. Six of its coal plants are scheduled to close between 2036 and 2061. The government has declared the province to be coal power free by 2030 and the investors are concerned about Capital's asset. However, we think capital power is undervalued and the good news for the company is it is likely to get a payout from the government, a payday close to $1billion.
5. Corus Entertainment:
Corus Entertainment Inc. (TSX: CJR.B) has recently acquired Shaw Communications. Corus has transformed itself into a television powerhouse with this acquisition. The new company is expected to generate between $300 and $350 million in free cash flow. With that free cash flow, the company is supposed to make around $1.6 per share. It puts the company's share somewhere around eight times free cash flow. It makes the market leader, Corus Entertainment, really cheap.
6. Canadian National Railway company:
The Canadian National Railway Company (TSE: CNR) is a Canadian Class 1 Railway headquartered in Montreal, Quebec. It serves Canada and the Midwestern and the Southern United States. Canada National is the largest railway in Canada.
The stock has received a consensus rating of “Hold” from the thirty ratings firms that are currently covering the company. The average one-year target price among firms is $76.29.
7. Magna International Inc:
Magna Inc. (TSE: MG) is a global automotive supplier. It is headquartered in Aurora, Ontario, Canada. The primary business of Magna is to manufacture auto parts to General Motors, Ford Motor Company, and Chrysler LLC. In addition to these Big 3 U.S automakers, its customers also include Tesla Motors, Volkswagen, BMW, and Toyota. The company designs, engineers, tests, and manufactures exterior systems, seating systems, electric vehicle system, chassis system and others.
Magna is a dividend diamond. It currently a dividend yield of 2.39%. On a consensus basis, analysts have a Buy/Sell rating of 2.40. The rating is based on a 1 to 5 scale where 1 represents a Strong Buy and 5 a Strong Sell.
8. Fortis Inc:
Fortis (TSE: FTS) is one of the top 15 utilities in North America. It owns natural gas distribution, power generation, and electricity transmission assets in the United States, Canada, and the Caribbean. Fortis has been awarded an S&P rating of A-. The company’s 60% of the asset being in the United States. It makes Fortis attractive for Canadian investors to get some exposure south of the border. The company also has a successful track record of acquisitions and has increased dividend per share for more than four decades. Its portfolio is low risk and well diversified. It has 3.2 million electric and gas consumers. The stock has dropped about 10% from a recent high of $44. The company has increased its dividend for 43 consecutive years. It is an opportunity to buy Fortis when it trades at about $40 per share and yields nearly 4%.