The 2022 stock market has shifted value from energy to tech and real estate. In 2020, tech stocks were growth stocks, but now they are value stocks. The tech selloff began on December 30, pushing some good stocks into a highly oversold category. Some of these stocks have reached a point where they are priced below their revenue and profit potential, making them value buys.
Many investors confuse value with dividends. But a value stock is like a high-quality pair of jeans worth $80 but available for $40 in a discount sale. The market undergoes corrections at regular intervals, and value stocks emerge. But only someone with a keen eye knows the worth of these stocks.
A new list of value stocks 2022
I have compiled a list of stocks that have dipped below their worth and are trading at excellent discounts. They might see some downturn in the short term, but hold on to them, and they will prove their worth when the economy revives.
Magna International stock
Magna International (TSX: MG)(NYSE: MGA) stock has been on my list since the end of 2020. I like this stock, as it has the potential to tap the electric vehicle (EV) opportunity. It is offering components and manufacturing services to 24 of the top 25 EV makers.
The stock dipped 42% after reaching its peak in June 2021. The decline is not due to company-specific reasons but macro headwinds like semiconductor supply shortage, rising commodity prices, the Russia-Ukraine war, lockdown in China, inflation, and now looming recession. That is quite a list.
Magna stock came close to being oversold several times this year but stayed above because of its strong balance sheet. It is trading at a forward price-to-earnings ratio of 12, as investors price in the grim outlook of 2022. The first-quarter EPS has slipped 40% year over year, but its $2 billion cash reserve gives it the flexibility to sustain a recession. If you look at the company’s five-year growth prospects, its current price is a great value pick.
This stock jumped over 200% from its March 2020 dip, as EV momentum picked up. It could repeat this rally as the above macro headwinds unfold.
Constellation Software
Constellation Software (TSX: CSU) is one tech stock that has generated consistent long-term growth for over 10 years. Even after falling 20% in the 2022 tech selloff, the stock has returned over 1,900% growth since 2012. This transcends to a 35% compounded annual growth rate (CAGR) in 10 years. What kept this growth going is the management’s eye for finding value software firms in niche verticals with limited competition and regular cash flows.
The market correction has opened avenues for Constellation to accelerate its acquisitions. The firm’s short-term earnings growth has slowed. But it will accelerate when it integrates the 2022 acquisitions. The stock has just surged over the oversold category and is trading at a 5.65 price-to-sales ratio. This is an attractive valuation for a company with a revenue CAGR of 13%.
Buying this stock at the current dip puts you on a track for more than 35% CAGR.
Lightspeed Commerce stock
Lightspeed Commerce (TSX: LSPD)(NYSE: LSPD) is a buy at the current value of 5.7 times its price-to-sales ratio. The company expects to maintain 35% organic revenue growth for the next few years. It has expanded significantly through acquisitions in the last two years.
Lightspeed raised significant equity funding when it was at its peak. It is now sitting on a US$1 billion cash reserve, which is enough to fund the company’s losses for the next decade. It has built a roadmap to turn profitable by increasing its average revenue per user. But its success is tied to economic growth, with people spending more on discretionary items. This makes it a value stock in a recession and a growth stock in a recovery.
