The Canadian stock market continues to hold firm on improving economic trends. However, a few fundamentally strong TSX stocks have witnessed a significant amount of selling in the recent past, leading them to reverse a major portion of their gains.
Take Lightspeed Commerce (TSX: LSPD)(NYSE: LSPD) and Absolute Software (TSX: ABST)(NASDAQ: ABST) for instance. Shares of both these companies have fallen more than 45% from their peak. Meanwhile, Dye & Durham (TSX: DND) and Algonquin Power & Utilities (TSX: AQN)(NYSE: AQN) have lost more than 21% in value from their 52-week highs.
While investors dumped these stocks, their long-term fundamentals remain intact. Moreover, the sharp pullback in these TSX stocks represents a good opportunity to buy. But before you go long on these stocks, let’s dig deeper to know the reasons for buying.
A solid stock to capitalize on the digital shift
I have said before that market’s reaction to Lightspeed’s Q4 outlook and moderating organic growth rate was a bit too harsh. The recent selloff in Lightspeed stock has driven its valuation lower, making it an attractive long-term pick to capitalize on the accelerated shift towards digital platforms.
I expect the secular industry trends, increased customer base, acquisitions, and higher payments penetration to support the recovery in Lightspeed stock. Furthermore, increased adoption of multiple modules by its existing customers, geographical expansion, and higher contribution of recurring subscriptions and transaction-based revenues to overall sales bode well for future growth.
An incredibly cheap tech stock
Like Lightspeed, the expected normalization in demand trends amid the economic reopening took a toll on Absolute Software stock. Absolute Software stock has fallen nearly 46% from its 52-week high and is trading significantly cheaper than its peers. Notably, Absolute Software’s next 12-month EV/Sales multiple of 3.8 is about 42% lower than its peers, indicating a buy at current levels.
While its growth could moderate a bit, higher enterprise spending on cybersecurity threats and digital transformation could continue to drive demand for Absolute Software’s products and services. Meanwhile, product innovation, strategic acquisitions, and geographical expansion will likely drive its addressable market and support the up-move in its stock price.
A fast-growing company
Dye & Durham is an acquisitive company that is growing fast. For instance, its revenues and adjusted EBITDA have increased at a breakneck pace on the back of its acquisitions. In the most recent quarter, Dye & Durham delivered 414% growth in its top line. Meanwhile, its adjusted EBITDA jumped 398%.
Looking ahead, the company’s strong acquisition pipeline, large customer base, high retention rate, and long-term contracts with top customers will likely drive its financials. Dye & Durham stock has corrected by 25% from its peak, presenting a solid opportunity to buy.
A reliable bet
Algonquin Power & Utilities is a solid stock for growth and income. Its low-risk portfolio of utility assets generates strong cash flows and supports higher dividend payments. Algonquin Power & Utilities has consistently grown its income at a healthy pace on the back of rate base growth. Furthermore, it has enhanced its shareholders’ returns by increasing its dividends at a compound annual growth rate (CAGR) of 10% in the last 11 years.
I believe its regulated assets, long-term agreements, growing renewable power capacity, strategic acquisitions, and expected double-digit rate base growth position it well to deliver solid returns in the long term. Further, it could continue to boost shareholders’ returns through higher dividends.
