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3 Canadian Stocks Under $10 for a Money-Making 2019

Karen Thomas, CFA
Growth from coins

Sometimes, looking at the smaller names in the market uncovers significant money-making opportunities.

Whether it is because of a lack of coverage or hype, a misunderstanding of future opportunities, or an assessment that they are too risky, these stocks are often mispriced.

Here are three stocks under $10 that have the potential for massive upside in 2019 — stocks that are in a defensive sector, have strong balance sheets, and/or are trading at cheap valuations.

Freehold Royalties (TSX:FRU)

With a highly diversified list of quality assets in a royalty model, Freehold is a less-risky way to bet on the oil and gas market. And with the recent strengthening of oil prices, the time when the stock finally moves higher may be here.

Trading at $8.50 at the time of writing, it has been hit hard in the last year, down almost 40%. Freehold stock currently has a dividend yield of 7.41%, which is safe and well covered.

You see, Freehold’s financials remain exceptionally strong, making this price action a great buying opportunity.

Operating cash flow increased 27% versus last year in the third quarter of 2018 and 9% versus last quarter.

And with a payout ratio of only 55%, investors have enjoyed dividend increases in recent times, as the company’s free cash flow generation has increased dramatically in accordance with the increase in oil prices.

Absolute Software (TSX:ABT)

With a $300 market capitalization and a 4.02% dividend yield, Absolute Software stock provides investors with a relatively small, profitable company that is returning cash to its shareholders as well as investing in growth.

I view it as a relatively low-risk way to gain access to the cybersecurity investment thesis.

In the last three out of four earnings reports, Absolute beat expectations, as profitability and margins are on the rise.

With a strong concentration of its business in the health care, financials, and professional services markets, high recurring revenue, and a no-debt balance sheet, Absolute is well positioned for future growth in its business and its stock price.

The stock has rallied approximately 15% in the last year in what may very well be just the beginning of solid returns ahead.

Northwest Healthcare Properties REIT (TSX:NWH.UN)

With a current dividend yield of 7.86%, Northwest represents a good opportunity. And although it trades at a hair over $10, it makes this list because of its strong future.

The company offers a high-quality, global, diversified portfolio of healthcare real estate properties located throughout Canada, Brazil, Germany, Australia, and New Zealand. As such, Northwest stock offers investors exposure to the biggest demographic shift that much of the developed world is facing.

Latest results showed strong net operating income growth of 4% on a constant-currency basis.

The one headwind the company is facing is that rising interest rates may be problematic for its highly levered balance sheet.

But healthcare properties generally have stable occupancies and long-term leases, which make the underlying REIT a defensive one that is attractive for long-term investors and dividend seekers.

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Fool contributor Karen Thomas owns shares of NORTHWEST HEALTHCARE PPTYS REIT UNITS. Northwest Healthcare is a recommendation of Stock Advisor Canada. Freehold Royalties is a recommendation of Dividend Investor Canada.