Late December can be a great time to pick up high-quality stocks that are cheap. Firstly, volumes are historically low around this season, so there are more opportunities to buy stocks that are being mispriced.
Secondly, it is also tax-loss selling season. If a stock did not meet expectations for 2021, investors may choose to sell it at a loss to help offset any other taxable gains made in the year.
Thirdly, end-of-year selling often occurs with institutional investors as well. If a stock underperformed a portfolio managers’ expectations, they are more likely to sell it to clear their books for a clean performance slate in 2022.
Short-term cheap can equal long-term value
Often, this pricing pressure is largely due to short-term thinking and short-term expectations. Consequently, long-term investors (those with a five-year-plus timeframe) can pick up stocks in high-quality business for very cheap prices. Here are three cheap stocks that I’m buying on sale this holiday season:
Cheap stock #1: Calian Group
Calian Group is an Ottawa-based conglomerate focused on four segments: healthcare, advanced technologies, education, and cybersecurity. This is not a well-covered stock on Bay Street. Yet it has delivered a nice 18% compounded annual rate of return over the past five years.
In the past two years, growth has been accelerating. Recently, it has added a number of high-quality acquisitions that are helping boost margins. Likewise, Calian has been growing organically by an approximate 10% average rate. Overall, revenues have been growing over 20% and EBITDA has been rising over 35%.
Despite that, this stock is still cheap. It has an enterprise value-to-EBITDA ratio of only 15. Average analysts have an $81 price target, so at $58 per share, this stock still has 40% upside to those targets.
Bargain stock #2: BRP
If you have been looking to buy a boat, snowmobile, or all-terrain vehicle, chances are good it has been a challenge finding one in 2021. These factors have been both a blessing and a curse for BRP this year. As one of the world’s largest recreational vehicle manufactures, it has seen record demand. However, concerns over supply chain challenges have seen its stock decline nearly 25% over the past few months.
However, the company has a great track record of selling innovative products and delivering strong shareholder returns. This stock is up 250% in the past five years. Management is bringing on new manufacturing capacity. Its supply issues appear only temporary in nature.
Today, at $100 per share, this stock only trades with a price-to-earnings (P/E) ratio of 10! For a growth stock, that is incredibly cheap. The average analyst sees 36% upside over the next 12 months.
Cheap stock #3: goeasy
If you are looking for exposure to a cheap but growing financial stock, goeasy could be an attractive stocking stuffer this holiday season. It is one of Canada’s largest sub-prime lenders. Most of Canada’s banks have pulled out of this market segment, leaving a lot of room for goeasy to command market share.
The company has a great storefront presence, but its online lending platform has gained strong traction since the pandemic. Likewise, goeasy is expanding its offerings for “buy now, pay later,” car loans, and specialized financing.
For a stock growing both the top line and bottom line by +/-20% a year, respectively, goeasy is cheap. At $170 per share, it only trades with a P/E of 11. This stock has pulled back recently. It is offering 30% upside if analyst targets are accurate.