Technology stocks had led the strong bounce back in the equity markets after bottoming out in March. However, as the weak economic indicators and geopolitical tensions beginning to take prominence in the last two trading days, the S&P/TSX Composite Index has corrected close to 3%, with the tech stocks witnessing more significant falls.
Industry experts expect the market to broaden going forward with investors shifting their focus away from high-growth tech stocks that are trading at expensive valuations towards value stocks. So, amid the increased interest, here are the three value stocks to buy right now.
Restaurant Brands International
My first pick is Restaurant Brands International (TSX:QSR)(NYSE:QSR), which owns three popular restaurant brands: Tim Hortons, Burger King, and Popeyes Louisiana Kitchen. Currently, the company trades over 11% lower for the year. Amid the lack of digital infrastructure, the pandemic-infused temporary closure of its restaurants dragged the company’s financials and its stock price down.
However, the company has been investing in expanding its digital capabilities, such as mobile ordering, drive-thru, and delivery services. Aided by these investments, the company’s comparable sales growth showed significant improvement by the end of the second quarter compared to its performance in the last two weeks of March.
With economies beginning to reopen across the world, the company’s sales could improve further. Also, its investments in digital channels could act as a tailwind in the long term. With cash and cash equivalents of US$1.54 billion at the end of the quarter, the company is well positioned to ride out this crisis.
Meanwhile, the company also rewards its shareholders with dividends, which currently stand at a yield of 2.8%. So, given its improving sales, healthy dividend yield, and an attractive forward price-to-earnings multiple of 22.3, the company provides an excellent buying opportunity for long-term investors.
My second pick is an airline company, Air Canada (TSX:AC), which has increased by over 23% in the last one month. Despite the increase, the company still trades 61.6% lower for this year. The travel restrictions amid the pandemic have weighed heavily on the company’s financials and its stock price.
Also, the recent extension of travel restrictions until September 30 by the Canadian government could increase the financial burden on the flag carrier. The company had burnt $1.72 billion of cash in the second quarter and could burn cash in the range of $1.35 billion to $1.60 billion during its third quarter. However, with its liquidity standing at $9.12 billion, the company is well positioned to ride out this crisis.
Meanwhile, with the travel restrictions expected to ease in the fourth quarter, the passenger demand could recover, fueling the company’s growth prospects. Although the demand for air travel could take a couple of years to reach its pre-pandemic levels, Air Canada, being a market leader, could bounce back more quickly.
Despite its near-term risks, the company’s cheap valuation provides an attractive buying opportunity for long-term investors.
My third pick is BlackBerry (TSX:BB)(NYSE:BB), which provides security software and services to enterprises across various sectors. Amid its significant exposure to the automotive industry, which has hit by a pandemic-infused lockdown, the company’s revenue fell 19.9% during its recently completed first quarter.
However, the automotive sector is beginning to recover with the resumption of production after the lockdown. Also, over the next five years, the company’s management projects to beat the 11% CAGR growth estimated by McKinsey for automotive operating systems and middleware for the next decade.
Also, given the structural shift towards remote working and the rise in data breaches and cyberattacks, the cybersecurity spending could rise. Gartner expects the cybersecurity business to reach US$190 billion by 2023, which includes US$56 billion coming from endpoint security.
So, BlackBerry, with its acquisition of Cylance, a cybersecurity company that secures end-to-end communications, could benefit from this growth. So, given its strong growth prospects, the company’s stock could easily double in the next three years.
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.
The Motley Fool recommends BlackBerry, BlackBerry, and RESTAURANT BRANDS INTERNATIONAL INC. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.