Two Undervalued Canadian Stocks Offer Recovery Upside as Market Rebounds

By mid-2021, the Canadian market had already staged a remarkable recovery. The TSX had climbed roughly 30% over the previous year, lifting many portfolios with it. But that very success had created a scarcity: there were few genuinely cheap stocks left to buy. When valuations rise across the board, bargains become rare, and the window to find them narrows.

This is the backdrop against which an investor might consider Roots and Boston Pizza Royalties—two companies that had been battered by the pandemic but were beginning to show signs of life as vaccination campaigns accelerated and restrictions started to ease. Both operated in sectors that had been hit hard: retail and food service. Both had been struggling before the crisis hit. And both, the argument went, still had room to run.

Roots, the iconic Canadian clothing retailer, had been in turnaround mode when the pandemic arrived. The company operates much like Aritzia, its more celebrated peer: it owns its supply chain, runs its own stores, and maintains a meaningful online business. Aritzia had already recovered and was trading near all-time highs. Roots, by contrast, remained cheap. The brand itself remained deeply popular with Canadian consumers, and the company had weathered the shutdown better than many retailers. As stores reopened and foot traffic returned, Roots looked like one of the last genuinely undervalued plays in the retail space.

Boston Pizza Royalties presented a different kind of opportunity, one tailored to income-focused investors. The fund doesn't operate restaurants directly; instead, it collects royalties on sales from Boston Pizza locations across the country. When restaurants closed or operated at reduced capacity, those royalty payments dried up. The dividend, which had once been substantial, had been cut. But here was the math that mattered: sales would need to grow 50% just to return to pre-pandemic levels. That represented enormous upside potential.

At the time of writing, Boston Pizza Royalties was yielding 5.4%—already attractive for a dividend investor. But the real prize lay in what could happen if the business normalized. The fund was paying out only 56% of its pre-pandemic dividend. If sales recovered fully and the payout returned to historical levels, the yield on an investor's initial purchase could exceed 9.5%. That gap between current yield and potential yield was the recovery story in miniature: a business temporarily depressed by external circumstances, with a clear path back to normalcy.

The broader point was one of timing and scarcity. The market had recovered so thoroughly that most bargains had already been claimed. These two stocks remained cheap not because they were bad businesses, but because they operated in sectors that had been visibly wounded. As the pandemic receded—and by mid-2021, with vaccination rates climbing, that recession seemed imminent—the question was whether an investor could still buy them before the market fully repriced them. The window, the argument suggested, was closing.