1 TSX Stock That Can Gain Big In 2020

Here’s why you can consider investing in Celestica stock right now?

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Markets are still volatile, causing much uncertainty among investors. However, there are also quality stocks in oversold territory. Smart investors can hunt for companies that have been battered by the markets in the last two months. They can make investments that will pay off in 12 to 18 months as the pandemic hopefully starts to recede.

Celestica (TSX:CLS)(NYSE:CLS) is a design, manufacturing, hardware platform, and supply chain solutions provider that operates in Canada and internationally. Shares of this firm have rebounded to its current price of $8.51 after falling to a low of $4.18 on March 16. I believe there is still some upside left in the stock and it could move higher in the upcoming months.

Celestica reported its first-quarter results for 2020, and revenue came in $1.32 billion, a decrease of 8% compared to the same period in 2019. This figure was lower than expected, mainly due to an $85 million hit because of COVID-19. Celestica experienced a reduction in order volumes due to the coronavirus pandemic.

Advanced Technology Solutions (ATS) revenue came in lower by 5%, while Connectivity & Cloud Solutions (CCS) revenue decreased 10% compared to Q1 2019. ATS accounts for 41% of Celestica’s revenue while CCS represents 59% of the revenue.

For a company operating in dire situations, it has done quite well for itself. Celestica has repaid over $60 million of long-term debt and has access to over $900 million in cash ($450 million revolver facility and over $470 million in cash/cash equivalents) that it can use to tide over the pandemic.

It helps that most of the company’s operations are classified as essential services and its global network is operating at 80% – 85% of normal workforce levels.

What’s next for Celestica?

While Celestica hasn’t issued any guidance for Q2, management has said that it expects results to remain “largely in line with our Q1 2020 results should conditions neither improve, nor deteriorate further.”

A major challenge for Celestica is in its ability to access the material. It impacted the firm in the first quarter and the same can be expected in Q2 as well. Material shortages increased by around 50% in Q1 2020 as compared to Q4 of 2019. While Celestica is trying to resolve these issues, there’s still a lot of uncertainty in the air.

Other challenges are reduced demand and operational inefficiencies. The company expects demand to largely return to normal in the second half of the year and is working on reducing the inefficiencies.

Celestica’s capital equipment business is running at about 60% to 70% capacity and is the most impacted of its businesses. The San Francisco Bay Area and Malaysia are the ones most impacted here. China is almost back to normal levels, and Europe and Thailand are over 90%.

Once Malaysia gets back up and running, this segment will be operating close to peak capacity. That said, Celestica’s capital equipment business posted profits for the first time in five quarters.

Fellow Fools Mat Litalien and Ambrose O’Callaghan believe that Celestica is a good buy, and after the Q1 numbers, I tend to agree.

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 Aditya Raghunath has no position in any of the stocks mentioned.

More on Coronavirus

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »

TSX Today
Coronavirus

What to Watch on the TSX on Tuesday, April 26

Earnings continue to come out on the TSX today, including Air Canada (TSX:AC). Meanwhile, investors may want to continue watching…

Read more »

think thought consider
Coronavirus

Should Investors Buy Goodfood Stock Ahead of Earnings?

Goodfood (TSX:FOOD) stock dropped on Wednesday ahead of the company's earnings release. And it's unclear whether there will be anything…

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Coronavirus

Cargojet Stock Soars Higher, Is it Still a Buy?

Cargojet stock (TSX:CJT) jumped after its deal with DHL, but at today's prices is the airline company still a buy…

Read more »

Arrowings ascending on a chalkboard
Coronavirus

Goodfood Stock Jumps 11%: Is it a Buy Before Earnings?

Goodfood (TSX:FOOD) stock jumped on news that it launched its one-hour delivery service in Ottawa on the eve of Q2…

Read more »

Plane on runway, aircraft
Coronavirus

Cargojet Stock Jumps 10% on New Strategic Deal

Cargojet (TSX:CJT) stock jumped 10% on Tuesday, as the company announced a long-term strategic partnership with DHL for international expansion.

Read more »

grow money, wealth build
Coronavirus

Passive Income Seekers: 1 Growth Stock Offering Lifelong Dividends

Passive income isn't just for energy stocks any more. This growth stock has seen 35% growth in the last month,…

Read more »