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RRSP Investors: Should You Buy Dollarama (TSX:DOL) and BlackBerry (TSX:BB) on Weakness?

Do you want sizable capital gains for your RRSP portfolio, regardless of dividends? This is what attracts investors to stocks that have fallen off a cliff.

When stocks that were once investor darlings fall, they usually fall hard. This is the case for Dollarama  (TSX:DOL) and BlackBerry (TSX:BB)(NYSE:BB), which have fallen 32% and 34%, respectively, from their 2018 highs. After such a plunge, investors are naturally asking if too much value was created to ignore.

Dollarama’s earnings growth has settled in at about 11% these days. This compares to an earnings-growth rate in the low to mid-20% range a few years ago.

As the company has grown, growth rates have slowed, partly because it is now off a higher base, but also because lower traffic, rising operating costs, and an end to price increases has taken a toll on the company and the stock.

Earnings have come in slightly below expectations in the last two quarters, and earnings estimates have been revised slightly downward.

The investor darling was once trading at lofty multiples (almost 30 times) and trending higher and higher with seemingly no thought to the cyclical nature of retail stocks. And then just a whiff of cracks in the company’s business was enough to send Dollarama stock plummeting 44% from its 2018 highs. Although the stock has since recovered a bit, it is still down over 32% from those highs.

Estimates for Dollarama have been slowly coming down, and the stock is certainly trading at much more attractive multiples at this point, since the stock price has come down so much, but have they come down enough?

The stock still trades at a P/E multiple of 21 times this year’s expected earnings, down from when it was trading at 29 times, but still not cheap considering that same-store sales numbers are slowing.

I would favour other stocks over Dollarama, as it looks like Dollarama stock has seen its day, at least for now, and there are challenges that must be overcome.

Cybersecurity, or the protection of internet-connected systems, will explode in the next few years, as more and more machines are connected and as the Internet of Things industry hits its growth projections of more than doubling by 2021 (relative to 2017 levels).
BlackBerry sees this and is on top of it.

With its $1.4 billion acquisition of Cylance, a next-generation cybersecurity provider, BlackBerry is positioning itself for this growth.

Recurring revenue is increasing, more than $500 million sits on the balance sheet, and the company’s Cylance acquisition is accretive to EPS within the year.

Strong future growth awaits BlackBerry, as it stands to benefit greatly from its exposure to the cybersecurity business, so I think it looks like a good opportunity after its +30% fall.

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Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool owns shares of BlackBerry. BlackBerry is a recommendation of Stock Advisor Canada.

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