3 Canadian Stocks That Look Cheap for a Reason (And Why That’s OK)

Sometimes a stock looks cheap because the market is not being foolish. It may face real pressure from debt, a messy turnaround, cyclical risk, or an industry that investors simply do not trust right now. That does not always make it a bad buy. In fact, some of the better opportunities come from companies that have obvious issues, but also a clear path to getting better. The trick is making sure the reason for the discount is temporary or manageable, not fatal.

AC

Air Canada (TSX:AC) is a good example. It looks cheap because airlines always come with baggage. Investors worry about fuel, labour costs, economic slowdowns, and the fact that one disruption can ruin a quarter. Over the last year, Air Canada stock also had to deal with softer Canada-U.S. demand and rising labour costs. Still, it kept leaning into stronger international and premium travel, and in February it disclosed an order for eight Airbus A350-1000 aircraft to support long-haul growth.

The earnings were stronger than the stock price might suggest. Air Canada stock reported record 2025 revenue of $22.372 billion, operating income of $918 million, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $3.124 billion, and net income of $644 million, or $1.86 per diluted share. It also generated $747 million in free cash flow and guided for 2026 adjusted EBITDA of $3.35 billion to $3.75 billion. With a market cap around $5.2 billion, the stock still screens cheaply relative to its earnings power. The risk is obvious: airlines can stay cheap for a long time. But if international demand holds, that discount can still work in investors’ favour.

AQN

Algonquin Power & Utilities (TSX:AQN) looks cheap for a different reason. Investors have spent years losing patience with a company that once tried to be too many things at once. The reset has been messy. Over the last year, though, Algonquin sold its renewable energy business to cut debt and sharpen its focus on regulated utilities, and it brought in Rod West as chief executive to push that simpler strategy forward.

Yet the recent numbers were better than the mood around the stock. For 2025, Algonquin reported net earnings of US$208 million, or US$0.27 per share, and adjusted net earnings of US$258.8 million, or US$0.34 per share. The company reaffirmed 2026 adjusted earnings per share (EPS) guidance of US$0.35 to US$0.37 and laid out a US$3.2 billion regulated capital plan through 2028, supporting expected rate-base growth of 5% to 6%. With a trailing price-to-earnings (P/E) near 92, it is not dirt cheap on paper, but it looks far more stable than it did a year ago.

NFI

NFI Group (TSX:NFI) makes buses, and that has meant years of supply-chain headaches, margin pressure, and project execution issues. Over the last year it also had to work through a battery recall and settlement. None of that is small. Even so, the business finally started showing the kind of operating leverage investors had been waiting for, and that makes the story more interesting than the headline risk alone suggests.

The turnaround started to show up in 2025 results. Revenue rose to $3.615 billion from $3.122 billion, adjusted EBITDA jumped to $335.7 million from $214.4 million, and adjusted net earnings reached $85.4 million, or $0.72 per share. Yes, reported net loss for the year was still $142.1 million, so the market has every right to stay cautious. But NFI ended the year with a backlog worth about $13 billion and guided for 2026 revenue of $3.9 billion to $4.2 billion and adjusted EBITDA of $370 million to $410 million. With a market cap around $2 billion, the stock still reflects a lot of doubt.

Bottom line

So, yes, these stocks look cheap for a reason. Air Canada stock carries airline risk. Algonquin is still rebuilding trust. NFI is still proving its recovery is real. But that is exactly the point. Sometimes, a stock does not need to be flawless to work out well. It just needs the bad news to stop getting worse, and the business to start getting better.

The post 3 Canadian Stocks That Look Cheap for a Reason (And Why That’s OK) appeared first on The Motley Fool Canada.

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More reading

• 1 Cheap Canadian Stock Down 66% to Buy and Hold
• A Year Later: 3 TSX Stocks That Proved the Doubters Wrong
• 5 Canadian Stocks I’d Buy if I Wanted Instant Income
• Is Air Canada Stock a Buy After Falling 8.4% This Year?
• Top Canadian Stocks to Buy With $10,000 in 2026

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Air Canada and NFI Group. The Motley Fool has a disclosure policy.