2 Beaten-Down Canadian Stocks That Could Turn it Around

Here are two stocks that had a really rough time in 2020 but could turn it around with strong gains in 2021.

| More on:
edit U-turn

Image source: Getty Images

The 2020 market dip was different from the previous crashes and corrections for a wide variety of reasons. But now that it’s a thing of the past, a lot of investors might already be mentally preparing themselves and actually preparing their investment portfolios for a recession.

Even though a lot of stocks have recovered, not all businesses have recovered their pre-pandemic financial strengths and income levels, and some of them might go belly up if another crash hits too early. But on the bright side, given enough time, even the most beaten-down stocks can actually recover. 

The premier airline

Air Canada’s (TSX:AC) potential bankruptcy was a hot topic last year, but thanks to the company’s resilience and some brutal survival measures, it managed to survive on almost negligible operational activity compared to its pre-pandemic prime. But despite its liquidity position, another recession might be too much for the company to handle. 

The company has sustained heavy losses for four consecutive quarters. Thanks to the positive pandemic outlook and vaccination, the stock is finally recovering, but the momentum can reverse, mostly if the next recession is associated with COVID’s new strains. But even if it’s purely a financial dip, like the consequence of the government pulling the plug on benefit payments, Air Canada might sink.

Conversely, Air Canada can also prove to be a great recovery bet if the next crash is too far away. The stock is already up 21.3% this year and about 120% from its lowest valuation during the crash. It might keep climbing, as the fear of the pandemic dissipates.

A real estate stock

Like some others in the sector, Interrent REIT (TSX:IIP.UN) is having trouble recovering from its pre-pandemic valuation and growth momentum. The REIT is still trading at a price that’s 25% down from its pre-crash peak. It might be bad news for investors who already have this stock in their portfolio but an opportunity for others.

At a price to earnings of five and a price to book of one, the stock seems very attractive from a valuation perspective. Ironically, its revenues and gross profits didn’t take a serious dip, even during the worse quarters last year, and it’s one of the few REITs that hasn’t slashed dividends yet. It’s offering a 2.39% yield at a very comfortable 10.8% payout ratio.

The company is financially stable, and it’s likely to start recovering once the sector has built some growth momentum. If it turns things around and picks up where it left off, Interrent can be a profitable long-term growth bet.

Foolish takeaway

Not all beaten-down stocks are liabilities. Air Canada has already recovered quite a bit, and Interrent can become a decent undervalued growth bet. The two stocks are still on the road to recovery, but they might soon reach their destination and grow beyond it. So, if you believe they can survive the next recession as well, you may consider adding them to your portfolio and wait for them to turn things around. 

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 Adam Othman has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Sale sign, value, discount
Dividend Stocks

3 Top Dividend Stocks That You Can Buy Under $50

The global equity markets have turned volatile over the last few weeks amid the fear that the U.S. Federal Reserve …

Read more »

ETF chart stocks
Dividend Stocks

3 TSX ETFs to Buy for Big Dividends

Dividend-paying exchange-traded funds (ETFs) are excellent investment options for passive investors. Apart from instant diversification, would-be investors earn in two …

Read more »

grow dividends
Dividend Stocks

3 of the Best Dividend Growth Stocks That Money Can Buy

Long-term investing has several advantages, which is why so many well-known investors like Warren Buffett recommend it as a strategy. …

Read more »

investment research
Dividend Stocks

3 Cheap Canadian Stocks to Buy Now Before the Dividend Deadline!

Motley Fool investors have been searching high and low for safe stocks in this volatile market. The TSX today doesn’t …

Read more »

Glass piggy bank
Dividend Stocks

How to Accelerate Your TFSA Returns From Dividend Stocks

The stock market saw a correction in January, as investors booked profits ahead of the central bank’s interest rate hikes. The TSX …

Read more »

money cash dividends
Dividend Stocks

Top 3 Dividend Stocks in Canada for 2022

Canada is home to some of the best dividend stocks in the world. With finance, telecoms, and energy dominating the …

Read more »

calculate and analyze stock
Dividend Stocks

2 Top TSX Stocks to Put on Your TFSA Buy List

TFSA investors are searching for undervalued TSX stocks to buy that have the potential to deliver big gains in 2022. …

Read more »

Payday ringed on a calendar
Dividend Stocks

Get Unbelievable Monthly Income With High-Yield Dividend Stocks

The only thing better than a dividend stock is a stock that pays dividends every month. For people who live …

Read more »