3 Canadian Stocks With Earnings Growth Over 23%

Canadian bond yields are rising as investors reassess inflation risks, which is putting more pressure on weaker balance sheets and stretched valuations. That creates an opening for patient investors who prefer strong cash flows and cleaner finances at sensible prices. This article focuses on a group of resilient Canadian stocks that appear underappreciated by the market and highlights three standouts from this high quality, undervalued pool.

The stocks covered below are just a starting sample from this high quality undervalued theme, and the full screen surfaced 7 more companies with equally compelling narratives that are not included in this article. To see the complete list and focus on your own highest conviction ideas, head straight to the High Quality Undervalued Stocks screener.

Celestica (TSX:CLS)

Overview: Celestica is a Toronto based electronics manufacturer that builds and manages hardware platforms and end to end supply chain services for original equipment makers, hyperscalers and cloud providers, including the Helios rack scale AI platform with AMD that plugs it directly into cloud and AI data centre build outs. Alongside this AI oriented Connectivity and Cloud work, Celestica also serves aerospace, defense, industrial and health technology customers, which gives it a broader, more diversified base of demand.

Operations: Celestica generates most of its revenue from Connectivity and Cloud Solutions at US$12.3b, with Advanced Technology Solutions contributing US$3.3b.

Market Cap: CA$47.8b

Celestica may warrant a closer look if you want direct exposure to the pick and shovel hardware behind cloud and AI, while still caring about balance sheet strength and cash generation. The company designs and builds networking, server and rack scale AI platforms for hyperscalers, and recent equity raising has given it more funding capacity for this build out. Forecasts in the market point to strong revenue and earnings growth, along with high future returns on equity, which aligns with a high quality, undervalued theme. A key risk is that a large share of revenue is tied to a small number of powerful cloud customers and to AI spending cycles, so any slowdown in their capital plans, or missteps with new high speed networking products, could affect results significantly.

Celestica’s AI hardware story is accelerating. The real test is whether cash generation and customer concentration risks line up with that growth. Review the 4 key rewards and 1 important major warning sign

MDA Space (TSX:MDA)

Overview: MDA Space is a Canadian space technology company that builds satellites, space-based broadband systems like its MDA AURORA platform, and modular robotics such as MDA SKYMAKER and Canadarm3 that support government and commercial missions in orbit and on the Moon and Mars. These contract-backed satellite communications and robotics lines are the clearest link to the high quality undervalued theme, since they are designed to produce recurring revenue from long term programs while being supported by a solid balance sheet.

Operations: MDA Space generates all of its CA$1.9b revenue from its combined Geointelligence, Robotics & Space Operations and Satellite Systems segment, with most sales coming from Canada at CA$1.2b and the United States at CA$550 million.

Market Cap: CA$6.5b

MDA Space may be of interest if you want exposure to contract-backed space infrastructure that ties into the high quality undervalued theme, rather than speculative space concepts. Its order book includes large multi year satellite and robotics programs for governments and commercial operators. These programs support the case for recurring cash flows and help explain why some analysts see a valuation gap relative to estimated fair value. At the same time, high capital spending, a rich P/E and recent dilution mean the story depends on strong execution and efficient use of its new capacity. If those contracts ramp as planned, the combination of backlog, technology depth and improving margins could be a notable mix for patient investors.

Growth in MDA Space’s backlog and capacity is only half the story. The real question is whether the order book justifies today’s rich P/E or masks emerging risks. Read the 3 key rewards and 4 important warning signs (1 is major!)

Tourmaline Oil (TSX:TOU)

Overview: Tourmaline Oil is a Calgary based producer of natural gas, condensate, and oil. It is focused on large scale, low cost assets in the Alberta Deep Basin, the Montney in Northeast British Columbia, and the Peace River High Triassic oil complex. The company’s strongest link to the High Quality Undervalued Stocks theme is its cash generating Montney and Deep Basin gas production, which supports meaningful free cash flow and a conservative balance sheet while giving investors targeted exposure to upstream hydrocarbons.

Operations: Tourmaline Oil generates all of its CA$4.8b revenue from petroleum and natural gas properties in Canada.

Market Cap: CA$24.5b

Tourmaline Oil may be worth a close look if you want exposure to large scale Canadian natural gas that is already generating cash today, and it is also tied into LNG export growth that could affect the value of its Montney and Deep Basin volumes over time. Its own infrastructure footprint and long term LNG agreements help underpin that cash flow profile, which in turn supports dividends, renewed buybacks of up to about 4% of shares, and ongoing tuck in deals around existing assets. The flip side is heavy reliance on gas prices, high capital commitments into the next decade, and funding that leans on external borrowing, so the share price outcome will depend on how free cash flow, margins, and export access evolve.

Tourmaline Oil’s cash-generating gas assets and LNG links suggest a story that many investors may be only half pricing in. The real twist sits inside the 2 key rewards and 3 important warning signs (1 is major!)

Seeking Alternatives Before The Crowd

Fresh opportunities can move from quiet to flying once momentum builds. Consider this window while it matters, before prices get caught by the crowd, and review your options promptly.

• Spot resilient income plays and stress test your cash flow exposure with the 3 dividend fortresses before yields change and these payouts get priced for perfection.
• Hunt for under the radar growth stories using the curated 9 high quality undiscovered gems before their momentum catches wider attention and entry points become less forgiving.
• Track real businesses behind digital assets and assess diversification options through the hand picked 19 cryptocurrency and blockchain stocks while valuations are still being formed.

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.

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