We recently published a list of 10 Undervalued Canadian Stocks to Buy Now. In this article, we are going to take a look at where The Toronto-Dominion Bank (NYSE:TD) stands against other undervalued Canadian stocks to buy now.
Q1 2025 saw some challenges to the financial markets, primarily because of trade issues, says Sun Life (a Canadian-based international financial services company). The US decided to impose extra taxes, known as tariffs, on goods coming from numerous countries, including Canada. This move impacted the investors’ sentiments as to how it might slow down business and economic growth, not only in Canada but globally. The firm noted that Canada’s economy remains strong, and the BoC is no longer concerned with inflation. It lowered the interest rate by 50 bps to 2.75% as an effort to manage the economic impact of US tariffs.
Current State of Canada’s Economy
Canada’s economy strengthened at the end of 2024, says Sun Life, thanks to the lower interest rates. That being said, the markets remain nervous about economic strength. As per the firm, Canada’s economy saw a growth of 2.6%, annualized over Q4 2024. Consumer spending acted as the critical growth driver. Also, reduced interest rates aided in driving consumer spending. The country’s economy also benefited from the stronger exports.
The firm also highlighted that Canada’s unemployment rate sat at 6.6% as of February. BoC decided to reduce rates in part because of the improving labour market. Notably, Canadian equities touched a new high early in the quarter. Talking about the sectors, the Materials and Utilities sectors were tagged as the strongest performers. However, the Health Care and IT sectors saw the weakest returns.
Bloomberg, while quoting Scotiabank, mentioned that Canada’s stock markets are expected to outperform after avoiding the worst of Trump’s tariffs. Scotia Capital Inc. provided a double upgrade to Canadian equities, from “Underweight” to “Overweight,” with analysts highlighting that both Canada and Mexico have managed to dodge the bullet in the escalating trade war. As per Bloomberg Intelligence analysts Gillian Wolff and Gina Martin Adams, TSX valuations are low relative to pre-pandemic levels, which offer a buffer against economic volatility and trade war.
The analysts at Scotia Capital Inc. believe that the escalating trade war announcement is negative for the US and the rest of the world. Scotiabank has dropped emerging market equities to “Underweight” from “Neutral,” mentioned Bloomberg.
Our Methodology
To list the 10 Undervalued Canadian Stocks to Buy Now, we used a screener to shortlist Canadian companies that trade at a forward P/E of less than ~20.0x. Next, we mentioned hedge fund sentiment around each stock, as of Q4 2024, and ranked them in ascending order of this metric.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is The Toronto-Dominion Bank (TD) the Undervalued Canadian Stock to Buy Now?
A portfolio manager monitoring the changing trends in the U.S. companies' securities.
Headquartered in Toronto, Canada, The Toronto-Dominion Bank (NYSE:TD) offers various financial products and services. Morningstar believes that the bank’s new CEO, Raymond Chun, remains focused on putting it on the right track. Notably, 2025 is expected to be a transitional year as The Toronto-Dominion Bank (NYSE:TD) has been actively remediating its US anti-money-laundering system with elevated expenses as well as continues to reposition the US balance sheet for its asset cap growth limitations, says Morningstar. The firm also added that the bank sold its 10.1% equity stake in Charles Schwab, offering it excess capital, which can be used to cover the costs related to the balance sheet optimization and for conducting share buybacks.
Elsewhere, BMO Capital has kept an “Outperform” rating on The Toronto-Dominion Bank (NYSE:TD)’s shares. The firm has noted that its robust capital position after the sale of Charles Schwab shares offers comfortable downside protection. The Toronto-Dominion Bank (NYSE:TD)’s strong capital base enables it to withstand economic downturns and regulatory challenges more effectively as compared to the less well-capitalized competitors. This can allow it to pursue strategic acquisitions or investments in new technologies, which can fuel future growth. Its healthy capital position can enable it to return more value to shareholders in the form of dividends and share buybacks, making it attractive to income-focused investors.
Overall, TD ranks 8th on our list of undervalued Canadian stocks to buy now. While we acknowledge the potential of TD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for a deeply undervalued AI stock that is more promising than TD but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
