Canada's Resilient Growth: Seizing Undervalued Opportunities in Equity and Bonds

Amid global economic turbulence, Canada's economy has demonstrated surprising resilience, offering investors a compelling entry point into sectors poised to thrive as monetary policy eases and structural tailwinds take hold. With the Bank of Canada pivoting toward accommodative policies and key industries showing hidden strength, now is the time to capitalize on undervalued opportunities in both equity and fixed income markets.

The Foundation of Resilience: Growth and Monetary Policy

Canada's GDP growth, though moderating to an annualized 1.3% in 2025, remains underpinned by domestic consumption and service-sector strength. While trade tensions with the U.S. have introduced volatility, the Bank of Canada's aggressive rate-cutting cycle—trimming the policy rate to 2.75% and signaling further easing—has created a supportive backdrop for growth. Analysts project a terminal rate of 2.25% by year-end, with the central bank prioritizing stability over inflation concerns that remain anchored near 2.4%.

This environment favors sectors that can leverage lower borrowing costs and inflation-resistant pricing power.

Equity Plays: Undervalued Sectors with Catalysts

1. Consumer Staples: Riding the Inflation Wave
Despite headline inflation cooling to 1.7% in April, core drivers like food and travel are surging. Food purchased from stores rose 3.8% year-over-year in April, fueled by higher beef, coffee, and vegetable prices. This creates a tailwind for companies with pricing power and supply-chain resilience.

George Weston, a food production giant, trades at a P/E of 18.5—below its five-year average of 22—despite strong organic growth. Similarly, Loblaw Companies (TSX:L), Canada's largest grocery retailer, offers exposure to rising food inflation while benefiting from e-commerce expansion.

2. Travel & Tourism: Betting on Post-Tariff Recovery
Travel tour prices jumped 6.7% year-over-year in April, signaling pent-up demand as border restrictions ease. Canadian leisure travel firms, such as Air Canada (TSX:AC), are undervalued relative to their pre-pandemic peaks.

With U.S.-Canada travel volumes rebounding and corporate travel normalizing, Air Canada's valuation at 0.8x P/B (vs. a historical average of 1.2x) presents asymmetric upside.

3. Energy: Navigating Volatility with Selectivity
While oil prices have been pressured by trade-related demand shifts, Canadian energy firms with low-cost production and hedging strategies are undervalued. Suncor Energy (TSX:SU) trades at 5.8x EV/EBITDA, near decade lows, yet its balance sheet remains robust.

Fixed Income: Safety in a World of Uncertainty

The Bank of Canada's easing cycle has pushed short-term yields down, creating opportunities in Canadian government bonds and high-quality corporate debt.

Short-duration government bonds (e.g., 2–5-year maturities) offer stability with yields of 3.5%+, while investment-grade corporate bonds from sectors like telecom or utilities provide yield premiums of 100–150 bps over benchmarks.

For risk-tolerant investors, high-yield bonds tied to resilient sectors (e.g., consumer staples or energy) could yield 5–6%, benefiting from the BoC's liquidity support.

Risks and the Case for Immediate Action

Trade tensions remain the primary risk, with U.S. tariff threats capable of derailing export-dependent sectors. However, the BoC's data-dependent approach ensures policy support will remain in place if growth falters. Meanwhile, structural trends—like rising food prices, travel recovery, and low bond yields—favor early investors.

Conclusion: The Time to Act Is Now

Canada's economy is a mosaic of hidden strengths. With monetary policy easing, inflationary pressures concentrated in growth sectors, and valuations still depressed in key industries, the stage is set for outsized returns. Investors who act now—allocating to undervalued equities like George Weston or Air Canada, and pairing them with defensive fixed income—can secure a portfolio primed to capitalize on Canada's resilient trajectory.

The question isn't whether to invest, but how quickly you can position yourself before these opportunities narrow.