The Canadian stock market has defied unrelenting volatility, hitting all-time highs even as it faces tariff tensions and inflation threats from the Iran war. Amid a frothy market, stretched valuations have made it harder to find quality stocks with room to run. Still, attractive opportunities remain within Morningstar’s Canada coverage.
The Morningstar Canada Index advanced more than 14% in 2026 so far, following a strong performance in 2025, when it gained over 28%. While much of the market is flush, there are discounted names for investors seeking value. The following three stocks—a consumer cyclical, industrial, and technology name—are the cheapest Canadian stocks covered by Morningstar analysts.
3 Undervalued Canadian Stocks
Apparel manufacturer Gildan’s recent underperformance has largely been attributed to a short-seller report accusing the company of inflating revenue, which it denied. Meanwhile, stocks of Thomson Reuters and CGI have been dragged down by investor fears of artificial intelligence disrupting their business models.
How We Screened for Undervalued Stocks
We combed through Canadian stocks covered by Morningstar equity analysts for those with 4- and 5-star ratings, meaning they’re trading significantly below their Morningstar-assessed fair value estimates. The three most undervalued names all hold meaningful positions in their respective markets. Gildan benefits from a coast advantage, while Thomson Reuters and CGI’s competitive advantages are underpinned by intangible assets and switching costs. All three stocks have been assigned narrow moat ratings by Morningstar analysts.
Gildan Activewear
- Fair Value Estimate: C$134.00
- Price/Fair Value: 0.55
- Economic Moat: Narrow
- Capital Allocation Rating: Standard
- Morningstar Rating: ★★★★★
Canadian clothing major Gildan primarily sells blank T-shirts, sweatshirts, and other clothing items to wholesalers and major clothing brands. The firm also sells branded clothing under the Gildan, American Apparel, Comfort Colors, and Goldtoe brands. The Montreal-based company operates globally but generates 90% of its sales in the United States.
The firm owns manufacturing facilities that generate more than 90% of its revenue. This dynamic affords Gildan a cost advantage that is hard to achieve in the apparel business, says Morningstar equity analyst David Swartz. “Due to its low-cost manufacturing, Gildan has 60%-80% share in the printwear basics category, and we believe that its production cost advantage has grown over time,” he says.
This cost advantage underpins Swartz’s narrow moat rating for Gildan. A narrow-moat rating signals that Morningstar expects the company’s competitive advantages can fend off rivals for at least 10 years.
The 5-star consumer cyclical stock is trading at C$71.62 per share, a 45% discount to its C$134.00 fair value estimate, which Swartz recently lifted due to US dollar appreciation. At their current valuation, he adds: “We think shares do not reflect the benefit of Hanesbrands [that Gildan acquired last year] and are undervalued.”
Read more about Gildan Activewear.
Thomson Reuters
- Fair Value Estimate: C$199.00
- Price/Fair Value: 0.73
- Economic Moat: Narrow
- Capital Allocation Rating: Exemplary
- Morningstar Rating: ★★★★
Thomson provides legal, tax, accounting, and risk information services, mainly in the US. It also owns an independent news agency, Reuters News. As of Sep. 8, Thomson was trading at C$136.83 per share, about a 27% discount to its C$199.00 fair value estimate.
“Thomson shares have been marked down significantly due to investor fears over AI disruption,” says Morningstar equity analyst Rob Hales, who covers the stock. “We continue to think generative AI will be a growth enhancer for the firm.”
Thomson’s narrow moat is underpinned by intangible assets and switching costs across its core segments: legal professionals, tax and accounting professionals, and corporates.
The firm’s databases have helped build a reputation as the leading authority in multiple fields. “It would take enormous time and cost for a rival to replicate these databases,” says Hales. “We remain confident in Thomson’s moat in its core franchises of legal research/know-how and tax calculation engines.”
More recently, Thomson’s second-quarter tax growth of 8% and third-quarter guidance for EBITDA margin of 36% left investors disappointed, driving the stock down 10% on Aug. 5.
Read more about Thomson Reuters.
CGI Group
- Fair Value Estimate: C$126.00
- Price/Fair Value: 0.81
- Economic Moat: Narrow
- Capital Allocation Rating: Standard
- Morningstar Rating: ★★★★
CGI is a Canadian IT supplier providing services to governments around the world, with a strong foothold in North America and Europe. The 4-star-rated technology stock is trading at C$97.37 per share, a 19% discount to its C$126.00 fair value estimate, which Morningstar equity analyst Luke Yang recently lifted from C$119.00, following a strong third-quarter performance amid a challenging operating environment.
The firm is particularly well-positioned to benefit from secular demand for emerging technologies, including cybersecurity, sovereign cloud, aerospace, and defense. These technologies are seeing greater adoption among governments, says Yang, who covers the stock. “We think government business should take the central role for CGI’s baseline growth, with demand from private-sector enterprises fluctuating a bit more based on economic cycles,” he adds.
Yang forecasts a 3% cumulative annual growth rate for CGI over the next five years, “primarily driven by secular IT upgrade demand from governments and industrial customers.”
Read more about CGI Group.
