9 Canadian Stocks That Pass The Infamous Buffett Test

A few years ago, on a podcast, top Berkshire Hathaway lieutenant Todd Combs revealed the ridiculously simple stock screen used by his boss, Warren Buffett.

Combs would often go to Buffett’s house on the weekends to drink Coca-Cola, eat junk food, and talk about stocks. It was during one of these discussions where Buffett told Combs about his easy screening process.

It included just three things:

1. Look for stocks trading under 15x earnings

2. With a greater than 50% chance of growing earnings by 7% or better over the next five years

3. And a greater than 90% chance of growing earnings at all 

Upon hearing this I immediately tossed all other stock screens out the window, knowing I’d never need them again.

I absolutely loved it. What a great screen. It checked off so many boxes — including simplicity, growth, and value.

Since Berkshire is so big, Buffett’s version of the screen was pretty much limited to the top 100 companies in the world. Even a decade ago, Berkshire was so big that it needed to make big investments in ultra-large companies to really move the needle. You and I don’t have that disadvantage. We can include small and even micro-cap stocks in our screen.

By the way, for anyone doubting the effectiveness of such an effective screen — Combs said that after looking at stocks that fit the criteria, only one name kept popping up. That company was Apple, and it went on to become one of Berkshire Hathaway’s most successful investments ever.

Let’s use the screen to come up with 9 reasonably-priced Canadian dividend stocks, names that are fairly valued in a market that seems a little bit ahead of itself.

Exchange Income Corp

Exchange Income Corp (TSX:EIF) is a growth-by-acquisition diversified player in the aerospace and manufacturing sectors. It has increased its dividend 17 times in the last 20 years and has delivered 5% annual dividend growth. That’s not bad for a company that has yielded more than 5% throughout its entire history.

Exchange shares have rallied significantly over the last year, increasing more than 50% if we include dividends. But the stock is still relatively cheap, trading at just over 12x forward free cash flow. Earnings are expected to pick up in 2026 and 2027 too, as the recently approved Canadian North acquisition and further contract growth in the air ambulance space add to the bottom line. Analysts predict double-digit earnings growth in both of the next two years.

This is one that you may want to wait for a pullback, but I still think will perform reasonably well from here.

Great-West Lifeco

One of the problems in doing a newsletter during a bull market is most positions are either trading at 52-week highs or close to them.

Great-West Lifeco (TSX:GWO) is one of those names. Shares have done quite well in the last few years as higher interest rates and firmer pricing has lifted virtually all insurance-related boats.

But Great-West isn’t just an insurer. It also owns some interesting Fintech assets. One is a small piece of Wealthsimple, which continues to lure away brokerage customers from Canada’s six largest banks. But it also owns Empower in the United States, which has grown to become the second-largest retirement provider in the country. It has more than 19M customers.

The company has ambitious plans for the medium-term, telling the market during a recent investor day that it plans to grow earnings by 8-10% annually through the next few years. It’s also aiming for a 19% return on equity, up nicely versus previous targets in the 16-17% range.

You get all this for slightly more than10x forward earnings. Not bad.

Topaz Energy

Topaz Energy (TSX:TPZ) is a oil and natural gas royalty company. Topaz has acquired the drilling rights for thousands of acres in B.C., Alberta, Saskatchewan, and Manitoba. It partners with oil and natural gas producers — especially Tourmaline, which is Topaz’s largest shareholder — who pay it royalties to extract resources from these lands.

There are a few exciting things about this business model. Firstly, it comes with way less commodity risk versus conventional oil production. Topaz is also way more efficient than a typical energy company. It has ridiculously high margins and very low expenses. It had a 92% free cash flow margin in 2024.

The company also owns natural gas and other oil infrastructure processing equipment. This is a similarly high margin business, and is underpinned by long-term contracts from producers.

Much of Topaz’s acreage is located in the Montney area of Northwest Alberta and Northeast B.C. Natural gas production from this region is expected to grow nicely over the next few years, buoyed by increased demand from power plants and LNG exports. This should provide the growth needed to pass that part of the Buffett screen.

Shares are reasonably valued, too, trading at approximately 12x free cash flow.

North West Company

One of our old favourites just squeaked onto the list. As I type this, North West Company (TSX:NWC) trades at 14.3x forward earnings.

For those of you unfamiliar, North West Company was originally acquired by Hudson Bay in 1821. Canada’s second-oldest company existed as part of a larger Hudson Bay conglomerate for more than 150 years before being spun back out again as a collection of general stores in far-flung locations.

The typical store offers everything from groceries to a post office to a small food court offering fast food options. The whole operation gets a captive audience, since folks in a remote community just can’t drive down the road to a competitor’s store.

This is also a nice setup for earnings growth. The company has the ability to pass on price increases better than the average store. It has far better pricing power than peers. Combine that with increased economic activity coming to Canada’s North region, and I continue to like this one over the long-term.

Propel Holdings

Propel Holdings (TSX:PRL) doesn’t get nearly the attention its larger peer Goeasy (TSX:GSY) attracts, but it probably should. It offers better growth potential than its peer, all while trading at a fairly similar valuation.

First, a primer. Propel is in the short-term subprime credit business. It uses AI, fancy algorithms, and various other tech tools to build a better underwriting model. It is constantly tweaking the model, but in the meantime it continues to expand across the United States, and more recently into Canada and Great Britain.

Revenue has grown by more than 50% per year over the last three years, with earnings following suit. This is a business with a fair amount of write-offs, but Propel has managed to balance those and its growth plan nicely.

Investors are a little skeptical of the whole story, and so Propel shares trade at just a hair over 10× 2025’s expected earnings. That’s a very reasonable price, but not nearly as cheap as only a few months ago — when the stock fell from $40 to under $25 in just a couple of months. We’ve since gained most of that back, with shares trading at just over $36 each as I write this.

And despite most growth stocks not paying dividends, Propel does. The yield is in the 2% range and it has been raised consistently for a couple of years now.

Bank of Nova Scotia

I just can’t help it. I love Canadian banks so much that one of them has to make this list.

I’m going with Bank of Nova Scotia (TSX:BNS) because I’m beginning to think the turnaround has legs. The company has shed underperforming assets in Latin America and taken a notable position in KeyCorp (NYSE:KEY) in the United States. It has also taken steps to improve the crown jewels and to boost its return on equity in Canada.

The bank’s LATAM exposure has been a negative for years, but there’s light at the end of the tunnel. Its Mexican operations deliver ROEs that are much better than other countries in the region. Its assets in Peru are surprisingly good, too. And Chile is booming as copper prices surge higher. And it has sold the worst performing assets in Colombia and Panama.

In short, I think the turnaround plan has legs. That should help boost earnings.

Meanwhile, shares trade at just over 10x earnings and the stock still yields close to 6%. That’s a nice consolation prize while waiting for the stock to go up.

Quebecor

Despite most every other Canadian telecom stock struggling amid a tepid economy, pricing pressures, and what many are calling onerous new government regulations, one name has emerged from the chaos and hit multiple 52-week and all-time highs.

That stock is Quebecor Inc. (TSX:QBR.B) and it is well-prepared for this kind of market.

Quebecor is following a strategy it successfully implemented in its home province. In the early 2010s it went up against Canada’s wireless leaders when it started offering cell service in Quebec. Less than a decade later it was the market share leader in its home province, surpassing peers by offering better deals and a leaner operating model.

The company acquired Freedom Mobile from Shaw in 2023 after the company was forced to sell to get the Rogers takeover approved. It immediately set to work doing the exact same thing across Canada. Incumbents were forced to cut prices to match.

Investors have realized this is a winning strategy, and Quebecor shares have rallied smartly. Even after such a big move, the stock is still reasonably priced. Shares trade hands at less than 10× 2025’s expected free cash flow.

Imperial Oil

Imperial Oil (TSX:IMO) is one of Canada’s largest crude oil producers, extracting more than 400,000 barrels of oil each day from assets in Alberta’s oil sands. It also owns significant downstream operations, including pipelines, refineries, and it provides the fuel for some 2,000 gas stations across the country.

Oil sands production has a few advantages versus peers. Most of the cost is borne up front, which makes production costs per barrel quite low compared to conventional peers. Technology also helps here, including self-driving trucks. Imperial refines most of its production too, so it doesn’t have to worry about selling it to third parties.

What I really like about Imperial is the balance sheet. The company owes less than $3B in debt compared to a market cap of more than $56B. That gives it a 0.29x debt-to-EBITDA ratio, which is one of the lowest debt ratios in the entire North American market. Imperial isn’t quite debt free, but screw it. I’m rounding down.

The company could easily repay its small debt, but it’s funneling billions towards repurchasing stock instead. It has bought back more than 40% of all shares outstanding since the end of 2015, with more happening in 2025. I’d bet on buybacks happening in 2026 and 2027, too.

Between the buybacks and planned production growth, Imperial should be able to grow the bottom line on a per share basis. Shares also trade at about 12x free cash flow, have strong dividend growth, and much more. It’s a great company.

Granite REIT

There’s a case to be made that Granite REIT (TSX:GRT.un) won’t be able to grow by 7% annually over the next five years — current analyst targets put the growth rate at about 5% — but the stock checks off both of the other boxes with ease. So it’s on the list.

Granite is the owner of industrial real estate throughout North America and into Europe. The portfolio currently spans more than 63M square feet spread over 144 different properties. It has one of the best balance sheets in the entire REIT universe, with a debt-to-assets ratio in the low-30% range.

The stock is undervalued thanks to a few different factors. One is tariff fears still hitting the auto sector. Another is interest rate fears; investors are still worried rates will march higher. Finally, the REIT space in general is just unloved right now.

This creates an opportunity. Granite has a current enterprise value of $7.4B, while the company internally values the portfolio at $9.4B. That’s a discount of more than 20%. The stock also trades at just 12× 2025’s estimated FFO versus a mean valuation of more than 15x FFO in the last decade. The dividend is also a generous 4.8% today with a 14-year record of consecutive distribution hikes.

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