As the TSX index looks to flirt with all-time highs, there are plenty of stocks that have missed out the party entirely. This piece will look at three stocks that have fallen downhill fast and determine whether they’re bargain bets to buy on the dip or value traps to steer clear of.
Spin Master (TSX:TOY) has been the tailspin master over the past year, with shares getting obliterated thanks mainly to the industry-wide headwinds caused by the void in the American brick-and-mortar toy scene by Toys “R” Us.
The stock is down a painful 37% from its high, but while others are fearful of the name, you should probably get greedy now that the stock is looking technically strong (shares have touched down with a healthy support level at around $36) and fundamentally stronger.
The stock is not only cheap, but it also has near-term catalysts that could propel it much higher in the second half of the year. Toys “R” Us is making a return from the dead, all while Spin Master prepares its holiday line-up, which I think will be sure to include some positive surprises.
In addition, the strong balance sheet will likely lead to accretive acquisitions in the space at a time when headwinds are likely at a maximum point.
Spin is a bargain.
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Power Financial (TSX:PWF) ran out of steam back in April and has since surrendered a good chunk (over 13%) of the gains posted in the first quarter.
At 9.3 times trailing earnings with a massive 6.3% dividend yield, the stock is undoubtedly a compelling play for older investors who are nearing retirement — a cheap price with a vast, safe payout, right?
Not so fast. Power Financial has its fair share of baggage, and that’s been factored into the share price, so the “low P/E multiple” may not be as cheap as most investors would think upon first glance.
I’m not a massive fan of Power Financial’s subsidiaries, notably IGM Financial, a non-bank wealth management firm that suddenly found itself on the wrong side of a secular trend.
High-fee, actively managed mutual funds are going out of style on the Bay Street fashion, and IGM will need to continue to pivot to relieve the rising pressure it’ll be under.
I prefer Great-West Lifeco (another piece of what you’re getting with PWF) over IGM, but I’d rather buy that stock than the unfavourable bundle you’re getting with Power.
I would avoid Power Financial at these prices.
Finally, we have a bus company called NFI Group (TSX:NFI) that’s suffered a 50% correction thanks in part to industry-wide weakness and company-specific issues that have exacerbated the stock’s recent pains.
The 5.65% dividend yield is now the main attraction to the stock, and given the 8.9 trailing earnings multiple that’s now slapped on the name, I’d say the bus company behind the New Flyer is a deep-value play for those who can tolerate a bit of near-term pain for potentially outsized long-term gain.
NFI’s balance sheet is looking pretty tight, but the dividend looks safe, and should management get their act together and beef up bus deliveries in the second half, I see plenty of upside and further dividend hikes.
If you’re not rattled by volatility, it may be time to lock-in the significant dividend yield. Just make sure you’ve got the room for seconds to increase your yield basis should shares continue tail spinning.
NFI Group is a buy (but only if you’ve got a long-term horizon).
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette owns shares of Spin Master. The Motley Fool owns shares of Spin Master. Spin Master and NFI are recommendations of Stock Advisor Canada.