A quick screen of TSX common stocks that lost at least 10% in February and have market caps greater than $500 million produces a list of 41 companies.
While some of the stocks experiencing significant declines last month deserved the correction — Element Fleet Management Corp. (TSX: EFN) for disappointing investors, and Dollarama Inc. (TSX: DOL) for merely running out of steam — but others got knocked down as part of an overall 2.8% decline in the TSX Composite for the month.
That’s why I believe it’s time to buy these three oversold stocks now.
Cara Operations
When Cara Operations Ltd. (TSX:CARA) announced it was buying Keg Restaurants Ltd. for $200 million January 23, 2018, it was trading just under $25. The news was met enthusiastically by investors, pushing its stock over $27, only to see all of that goodwill disappear in February; it now trades below where it was immediately before announcing the critical acquisition.
I’ve always thought Cara was a misunderstood stock that’s better than its $24 price tag. Now that it’s in business with a well-run Keg operations and Fairfax Financial Holdings Ltd. holding a majority of the votes, I see $30, possibly by the end of 2018.
Maxar Technologies
Fool.ca contributor Joseph Solitro did an excellent job February 26 explaining why Maxar Technologies Ltd. (TSX: MAXR)(NYSE: MAXR) saw its stock drop by more than 12% after announcing its fourth-quarter earnings.
While it had a good 2017, the company’s outlook for 2018 included a 2-4% decline for the year — enough to send investors packing.
I’ve always found that investors tend to overreact to negative news with equal enthusiasm to good news. In Solitro’s estimation, Maxar’s stock is a bargain at 12.3 times fiscal 2017 adjusted EPS of US$4.16.
For me, Maxar’s cash flow from operations is what stands out. It was US$130.4 million in 2016; the company believes it could be as high as US$400 million in 2018, more than 200% higher in just 24 months.
MAXR stock might be down, but it’s definitely not out.
BRP
For those unfamiliar with BRP Inc. (TSX: DOO), it is the recreational products business formerly owned by Bombardier, Inc. until being sold in 2003 to an investor group that included Bain Capital and the founding Bombardier and Beaudoin families. They proceeded to take it public a decade later at $21.50; it’s up 114% since then, despite the 12% correction in February.
The big concern for investors at the moment is a potential trade war that could affect how many snowmobiles and ATVs it sells in the U.S. and the profits it makes from each sale.
While this is a serious concern, I’m confident the company’s move to open a big office in Texas is part of its solution to the what-if scenario.
If DOO falls into the mid to low $30s, I’d be backing up the truck. As it is, I believe its stock is oversold given how well the business is performing at the moment.
