The stock market selloff is scaring many investors in Canada this week. Don’t let the headlines drive you into making poor buy-sell decisions in the market this month. The coronavirus outbreak is not a permanent market feature. This is at least a quarterly effect on your portfolio — or at most two quarters.
If a recession happens due to the coronavirus stock market selloff, it will be short. The market will rebound. The only way for everyday investors like yourself to make money in the market right now is to practice patience. Remember to adopt a long-term mindset and maintain a sell high, buy low strategy.
Buy SNC-Lavalin during the market sell-off
SNC-Lavalin Group concluded the criminal legal proceedings at the end of last year. Since then, shareholders have been pushing the stock price up. This past week, the market panic stunted the rebound in the stock’s market capitalization.
The market selloff may have lengthened the timeline for the full rebound. Fortunately, this just gives shrewd investors like you more time to buy in and take advantage of the remaining rebound (which will happen!).
Given the global political climate, SNC-Lavalin is confidently poised for a comeback to a $10 billion market capitalization from the current $5.5 billion valuation. In summary, the firm will raise money via equity assets despite the stock market sell-off.
The debt-to-EBITDA ratio fell sharply in 2019. The ratio then climbed back up to 3.04 times EBITDA in 2020. A low debt-to-EBITDA ratio means that the company can comfortably handle its debt burden. In contrast, a high debt-to-EBITDA could indicate a peak, leading to slower debt intake.
SNC’s free cash flow is rising faster than the price
Free cash flow per share now stands at negative $2.72. The stock price is still only at around $31 per share. Now is the time to buy during the market sell-off to get in on the bullish activity from a continued rebound in free cash flow.
SNC-Lavalin has powerful friends in the energy sector, including Exxon Mobile and Saudi Aramco. They have VIP access to some of the most profitable engineering contracts globally regardless of the court-ordered probation period. The company is in a great position to succeed long term in raising cash even in a bear stock market.
There’s no harm in taking note of their political clout to make some money from the big dogs. SNC-Lavalin’s punishment for the last 35 years of corruption can best be described as a “slap on the finger.” To put the fine in perspective, the fine doesn’t even equal the one year of SNC-Lavalin’s TTM profit of $353.88 million.
Even better for SNC-Lavalin shareholders is that the court gave the firm a five-year payment plan — investors are still rejoicing.
Should you buy into SNC-Lavalin stock?
It all depends on your personal investing style. Some long-term investors may want to buy stock in companies whose business practices closely align with their values. For those hopeful retirees, I’d suggest buying renewable energy stocks during the market selloff.
Other Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors might prefer to make money from wealthy, well-connected companies. For them, all power to you.
A long stock position in SNC-Lavalin is definitely your cup of tea, especially during a stock market selloff.
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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 Debra Ray has no position in any of the stocks mentioned.