The Canadian stock market has experienced significant growth over the past year, boasting total returns of approximately 31%. This remarkable surge has primarily been driven by a robust performance in the materials sector, particularly in gold, as well as a vigorous recovery in financial institutions bolstered by recent interest rate cuts from the Bank of Canada. This current climate significantly outpaces the market’s average annual return of around 13.8% over the last decade, marking it as an exceptionally favorable period for investors.
However, while such momentum is enticing, it elevates the stakes for investment strategies. In times of steep market rises, being selective and patient often yields better results than broadly investing across the board. Investors are advised to allocate only long-term capital—funds not needed for several years—into the stock market, allowing for the navigation of inevitable market fluctuations.
In this thriving market landscape, two undervalued Canadian stocks stand out, offering promising long-term potential even amid recent market gains.
FirstService (TSX:FSV), a reputable player in the real estate services industry, appears underappreciated in the current market. Despite the overall index’s impressive performance, FirstService’s shares have declined by about 14% in the past year. Notably, the company has achieved an impressive 10-year annualized return of around 17%. Currently priced at approximately $225 per share, it trades at about a 14% discount to its long-term average price-to-earnings (P/E) ratio, indicating a near-term upside potential of roughly 16%. Given FirstService’s focus on a defensive, recurring-revenue business model, along with its strong cash flow generation, this valuation gap presents a compelling investment opportunity.
The company has shown consistent growth, driven by organic expansion and strategic acquisitions within a highly fragmented market, justifying its premium valuation. Analysts predict a long-term normal P/E of about 32.8, with price targets suggesting potential upside of around 28%. Additionally, FirstService boasts a track record as a Canadian Dividend Knight, having increased its dividend consecutively for over a decade with an annualized growth rate of 13.9%, and a notable increase of 10% in February of this year.
On a different front, TELUS (TSX:T) presents an intriguing investment opportunity. After experiencing considerable lows in December 2025, this telecom giant has seen a sharp recovery, indicating that it may have reached its turnaround point. Despite this rebound, TELUS’s stock remains well below its historical average, suggesting further growth potential as it continues its recovery. Analysts currently assess the stock to be about 12% undervalued, projecting potential near-term gains exceeding 13%.
TELUS has been proactively enhancing efficiency through workforce reductions and digital transformation initiatives, with plans for potential sales of non-core assets that could further bolster its balance sheet and investor confidence. A key attraction for income-focused investors is TELUS’s dividend, which yields nearly 8.9%. Although the company has temporarily frozen dividend growth to aid in deleveraging, the payout remains appealing for those willing to exercise patience.
In the midst of a thriving Canadian market, there are still opportunities for disciplined investors. FirstService offers resilient growth, robust cash flows, and consistent dividend increases at a favorable valuation, while TELUS showcases turnaround potential coupled with a notably high yield. By maintaining selectivity and prioritizing quality, long-term investors can still uncover undervalued Canadian stocks worth considering for investment at this time.
