Exploring Three Undiscovered Canadian Stock Gems

In the current climate, Canadian markets are navigating through a phase marked by potential shifts in economic growth and monetary policy adjustments. As investors look towards diversification to manage volatility and tap into new areas of growth, exploring lesser-known stocks could align well with broader market trends that favor both cyclical and value sectors. A good stock in this context is one that not only stands resilient during economic fluctuations but also holds the potential for growth as market dynamics evolve.

Top 10 Undiscovered Gems With Strong Fundamentals In Canada

Click here to see the full list of 47 stocks from our TSX Undiscovered Gems With Strong Fundamentals screener.

Here we highlight a subset of our preferred stocks from the screener.

Simply Wall St Value Rating: ★★★★★★

Overview: Hammond Power Solutions Inc. designs and manufactures a wide range of transformers, operating in Canada, the United States, Mexico, and India, with a market capitalization of approximately CA$1.39 billion.

Operations: The company generates revenue primarily through the sale of its products, with a consistent increase in gross profit margin from 25.19% in September 2013 to 32.94% by June 2024, reflecting improved operational efficiency over time. The firm manages a blend of operating expenses and non-operating costs alongside its core operations, contributing to varying net income margins that have shown significant growth, peaking at approximately 8.73% in June 2024.

Hammond Power Solutions, a lesser spotlighted contender in the Canadian market, has demonstrated robust financial health and growth potential. With earnings soaring by 41% annually over the past five years and projected to grow by nearly 14% per year moving forward, this entity stands out. Recently, it reported a significant uptick in quarterly sales to CAD 197.21 million from CAD 172.45 million the previous year, alongside a jump in net income to CAD 23.59 million. Trading at 36% below its estimated fair value and with more cash than debt on its books, Hammond presents an intriguing blend of value and performance.

Simply Wall St Value Rating: ★★★★★★

Overview: The North West Company Inc. operates as a retailer specializing in food and everyday products and services, serving rural communities and urban neighborhoods in northern Canada, rural Alaska, the South Pacific, and the Caribbean, with a market cap of approximately CA$2.15 billion.

Operations: The company operates as a retailer of food and everyday products and services, generating a revenue of CA$2.50 billion as of the latest reporting period. It maintains a gross profit margin around 33%, reflecting its cost management in relation to sales revenue.

North West Company, a lesser-highlighted player in the Canadian market, reported a robust first quarter with a 4% year-over-year sales increase to CAD 618 million. Net income rose by 22%, reaching CAD 26 million, and earnings per share improved from CAD 0.44 to CAD 0.53. The company’s debt-to-equity ratio has significantly improved from nearly 96% five years ago to just under 43% now, reflecting stronger financial health and operational efficiency. This performance surpasses the industry’s average growth rate of only 3.5%.

Simply Wall St Value Rating: ★★★★☆☆

Overview: TerraVest Industries Inc. is a diversified manufacturer providing products and services to the energy, agriculture, mining, and transportation sectors in Canada and the United States, with a market capitalization of CA$1.59 billion.

Operations: TerraVest Industries generates revenue through diverse segments including Service, Processing Equipment, Compressed Gas Equipment, and HVAC and Containment Equipment. The company has demonstrated a notable increase in gross profit margin over the years, reflecting improved operational efficiency.

TerraVest Industries, a lesser-known contender in the Canadian market, showcases robust growth with a 30% earnings increase last year, surpassing the Energy Services industry’s 26.7%. With its net debt to equity ratio improving from 128% to 98.8%, and future earnings expected to grow by 18.23% annually, TerraVest’s strategic financial maneuvers include a recent follow-on equity offering raising CAD 84 million. Despite high debt levels, their operational prowess is evident in substantial quarterly sales growth from CAD 177 million to CAD 215 million year-over-year.

Turning Ideas Into Actions

• Embark on your investment journey to our 47 TSX Undiscovered Gems With Strong Fundamentals selection here.
• Got skin in the game with these stocks? Elevate how you manage them by using Simply Wall St’s portfolio, where intuitive tools await to help optimize your investment outcomes.
• Maximize your investment potential with Simply Wall St, the comprehensive app that offers global market insights for free.

Ready To Venture Into Other Investment Styles?

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com