As the Toronto Stock Exchange (TSX) soars to new heights – having appreciated nearly 26% over the past year – Canadian investors face a unique challenge. For those invested in market-wide funds, they may be reluctant to allocate more capital to the Canadian stock market.

In fact, record highs may tempt cautious investors to take profits and wait for a market correction before reinvesting. While this approach can help preserve capital, timing the market is tricky. Investors risk missing out on future gains, or worse, re-entering the market at higher levels, only to face downturns that are inevitable some point in the future.

However, for those focused on individual stocks, opportunities remain abundant. In a market driven by diverse company performances, savvy investors can still find undervalued gems, even amid all-time highs. By targeting solid businesses with reasonable valuations, investors can position themselves for ongoing success.

Canadian National Railway: A reliable blue chip stock

Canadian National Railway (TSX:CNR) is a reliable blue chip stock, known for delivering consistent long-term returns with below-average risk. With an A-grade balance sheet and decades of profit growth, CNR can be a cornerstone in any investor portfolio.

Since 2010, the company has achieved revenue per share growth at a compound annual growth rate (CAGR) of 8.5%, translating into impressive operating income growth of 9.1% per share. Ultimately, this sustained performance has led to diluted earnings per share growing by an impressive 10.8% annually.

Since 2010, it has generated revenue per share growth at a compound annual growth rate (CAGR) of 8.5%. That has translated to operating income growth per share at a CAGR of 9.1%. Ultimately, that resulted in diluted earnings per share growing at 10.8% per year.

In addition to strong financials, CN Rail is committed to returning value to its shareholders through dividends. Remarkably, it has increased its common stock dividend for nearly 28 consecutive years, with a five-year dividend growth rate of 11.7%.

Trading at $158.27 per share at writing, CNR offers a reasonable price-to-earnings ratio (P/E) that reflects its growth potential and provides a dividend yield of 2.1%. With a payout ratio of approximately 46% of its adjusted earnings this year, CNR is well-positioned to continue increasing dividends at a solid pace. Investors can expect the next dividend hike announcement in late January.

Magna International: A deep value prospect

For those seeking a deep value stock, Magna International (TSX:MG) could be your candidate. As a leading global automotive supplier, Magna has a solid track record of raising its common stock dividend for about 14 consecutive years with a five-year dividend growth rate of 6.9%.

Trading at $56.74 per share at writing, Magna is at a P/E of approximately 7.7, indicating potential for double-digit gains as the industry recovers.

Importantly, Magna's dividend yield is appealing, currently sitting around 4.5%. Analysts believe the stock is undervalued, trading at a discount of more than 20%. However, potential investors should proceed with caution.

As a cyclical stock, Magna's profits are sensitive to economic fluctuations, and it may experience significant downside risks during recessionary periods. These downturns could present strategic opportunities to build a larger position, particularly when considering the prospects of a multi-year turnaround as the automotive market rebounds.

The Foolish investor takeaway

Despite the TSX's impressive ascent, Canadian investors can still identify promising stocks like Canadian National Railway and Magna International. By focusing on strong fundamentals and reasonable valuations, investors can navigate the challenges of a soaring market.

The key lies in diligent research and a long-term perspective, which can allow investors to seize profit opportunities while mitigating risks associated with market volatility. As the TSX continues to rise, those willing to look beyond the surface could be well-rewarded.