Most of the top stocks listed on the TSX are trending lower, as a rise in the Delta variant of COVID-19, the decline in crude oil prices, and expected normalization in growth rate took a toll on investors’ confidence.
However, I see this selling in stocks as a healthy correction, providing long-term investors like me an opportunity to buy and hold top stocks at a lower price. As equities trend lower, let’s focus on three stocks that have solid growth potential and are too cheap to ignore at current price levels.
Suncor Energy
Let’s start with Suncor Energy (TSX: SU)(NYSE: SU) stock, which has lost approximately 15% in one month. Furthermore, it has corrected about 28% from its recent high of $31.38. The sole reason for this decline is the weakness in WTI price that has trended lower over the past month.
While challenges remain, I am bullish on Suncor’s long-term prospects, primarily due to its integrated assets and robust capital-allocation plan, including targeted debt reduction, share buybacks, and regular dividend payments. Moreover, Suncor’s focus on lowering its operating breakeven costs augurs well for future growth.
The favourable long-term energy outlook, margin improvements, cost reductions, and investments in base business will likely drive Suncor’s financial performance and its stock price in the long run. Meanwhile, investors could continue to benefit from its regular dividend payouts.
Absolute Software
Shares of Absolute Software (TSX: ABST)(NASDAQ: ABST) are down about 17% in one month on an expected slowdown in its growth rate and earnings miss during the most recent quarter. Notably, the company expects its revenues to increase by 11-13% in FY22 compared to a 15% growth in FY21. Further, the company expects to deliver an adjusted EBITDA margin in the range of 18-20%, which compares unfavourably with the adjusted EBITDA margin of 26% in FY21.
While Absolute Software’s growth rate could soften a bit, I expect the demand for its security products to remain elevated. Moreover, the strength in its annual recurring revenue (ARR) will likely sustain, reflecting a large addressable market, cross-selling of the platform, and a strong pipeline of new products. Furthermore, its recent acquisition of NetMotion will likely boost its ARR and adjusted EBITDA by diversifying its product portfolio and strengthening its competitive positioning in high-growth markets.
Absolute Software stock is trading very cheap as reflected through its next 12-month EV/sales multiple of 2.1. Its EV/sales ratio is well within reach and significantly lower than its peers.
Cineplex
Cineplex (TSX: CGX) recently announced its Q2 results that reflected a healthy improvement on a sequential and year-on-year basis. However, the coronavirus Delta variant is weighing on its stock, as reflected through a 12% decline in its price in one month. While the pandemic could continue to hurt Cineplex’s near-term operations, I see solid growth in the long term.
The company’s entertainment venues and theatres are open, implying that its revenues, capacity, and net cash burn rate could improve in the coming quarters. Also, an expected increase in traffic, strong movie slate, reduction in costs, the launch of CineClub (its subscription program), and focus on food home delivery services bode well for future growth.
Cineplex stock is trading at a big discount from the pre-pandemic levels and is too cheap to ignore.
