Canadian stocks attractively valued versus U.S. counterparts

Though Canada’s GDP trails that of the U.S., Canadian equities continue to be attractively valued compared to their American peers, says Tudor Padure, portfolio manager, equities, CIBC Asset Management.

“It’s important to note that 50% of TSX revenues come from outside of Canada, with roughly 30% directly tied to the U.S market,” he said in an Oct. 2 interview. “This means many of Canada’s leading companies are global players, not solely dependent on domestic economic conditions.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Padure said some Canadian banks and industrial names, like Element Fleet Management and Brookfield, earn a large share of profits outside of the country, particularly from the U.S. where growth is stronger. This global exposure helps offset slower domestic growth, supporting TSX earnings forecasts that closely match the S&P 500.

He is “cautiously optimistic” about Canada’s GDP growth going forward, due in part to Prime Minister Mark Carney’s announcement of a Major Projects Office, based in Calgary, which will fast-track approvals for key initiatives like LNG Canada Phase 2 and the Darlington New Nuclear Project.

Valuations, he said, depend on earnings growth and profit margins. As of Sept. 30, 2025, earnings growth and profit margins for the TSX and S&P 500 were closely aligned. Yet, the TSX trades at a 25% discount on a forward P/E basis — well above the 10% historical norm.

“In other words, Canadian equities today are about 15% cheaper relative to their U.S. counterparts, offering what we believe to be compelling value opportunity for investors seeking exposure to quality markets at a discount,” he said.

While the biggest risk to Canadian equities is the upcoming USMCA (the U.S.-Mexico-Canada agreement, also known as CUSMA) negotiation, Padure believes the risk is manageable.

“A resolution that avoids a dramatic tariff increase could lift a significant overhang, and potentially spur capital inflows into Canadian equities,” he said. “Investors should keep a close eye on these talks, as they could shape market sentiment in the near term.”

So, where are the opportunities?

Within industrials, Padure likes waste management companies, such as GFL Environmental and Waste Connections for their stable, double-digit earnings and free cash flow growth. As essential service providers in a fragmented industry with increasingly scarce landfill capacity, they have “staying power.”

Further, President Trump’s Big Beautiful Bill Act reinstating bonus depreciation is expected to boost free cash flow by lowering taxes and encouraging U.S. capital spending, he said, which could drive higher solid waste volumes.

“We are increasing our exposure to these names to capitalize on current valuation dislocations,” Padure said.

In technology, he likes Constellation Software and Descartes Systems. Both have recently underperformed amid concerns about generative AI disrupting software and SaaS models, but they are “well-equipped to adapt,” he said. Their scale and proprietary data support AI integration, and essential software creates high switching costs, which embeds them into customer workflows.

While Constellation Software faced pressure after founder Mark Leonard’s sudden resignation for health reasons, he said incoming CEO Mark Miller’s long tenure and the company’s decentralized structure ensure continuity. Padure remains “confident” in the company’s long-term outlook.

“Ultimately, we seek companies with high returns on capital underpinned by durable competitive advantages, trading at reasonable valuations,” he said.   

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.