Recessionary pressures are escalating to start the third quarter. All of the TSX’s 11 primary sectors, except energy (+40%), are likely to be in the red at closing on June 30, 2022. Oil stocks remain frontrunners due to multi-year high crude prices. Eric Nuttall, a partner and senior portfolio manager with Ninepoint Partners, expects mind-blowing free cash flow from the sector in the back half of this year.
But lost in the macro volatility are Cargojet (TSX: CJT) and Corus Entertainment (TSX: CJR.B). Although they’re not energy stocks, the businesses are resilient to weather the storm. Value investors should include both on their buy lists. The potential gains from this pair of cheap, undervalued stocks are over 60%.
Better protection
Cargojet isn’t a mediocre stock. The $2.57 billion provider of air cargo services is one of only four companies that made it the TSX30 List from 2019 to 2021. TMX Group launched the flagship program for the top growth stocks on September 2019. Cargojet joins Shopify, Ballard Power Systems, and Wesdome Gold Mines.
As of June 29, 2022, the industrial stock is down 15.6% year to date to $139.99 per share. Note that in the last five years, Cargojet’s total return is 215.36% (25.79% CAGR). Also, market analysts see a return potential of 66% to $232.58 in 12 months. The overall return should be slightly higher to include the modest 0.82% dividend.
In Q1 2022, Cargojet reported a net loss of $56.4 million compared to the $89.4 million net income in Q1 2021. Management cites the fair value adjustment of stock warrants for the net loss. If not for the said reason, net profit would have been $30.4 million. Total revenue grew 46% year over year to $233.6 million.
Currently, Cargojet’s fleet is 32 but management plans to increase it to 39 by year-end 2022 and to 48 by year-end 2024. The latest development is the new $2.3 billion, seven-year agreement with DHL. Cargojet will provide cargo services across four continents for the German courier. Another positive is the robust business-to-business deliveries.
Ajay Virmani, Cargojet’s CEO, said the company has heard no concerns about skyrocketing oil prices. He added that everybody is hoping that this fuel phenomenon is going to be short to medium term. Since Cargojet owns 93% of its existing fleet, Virmani also said the company is better protected against rising interest rates and inflation.
Growing revenues
Corus Entertainment may be in the red year to date (-21%) but analysts covering the stock recommend a buy rating. Their 12-month average price target is $6.18, or a 68% jump from $3.67. In Q3 fiscal 2022 (three months ended May 31, 2022), net income fell 27% versus Q3 fiscal 2021. However, consolidated revenue increased 8% year over year to $1.25 billion.
Its president and CEO Doug Murphy said, “Our portfolio of businesses is producing growth on all fronts, delivering strong consolidated revenue gains for the fifth consecutive quarter.” He also believes that the business portfolio of the $822.95 media and entertainment company is resilient to withstand potential recessionary pressures.
Superior returns
Cargojet and Corus Entertainment could deliver superior returns than other energy stocks if they can show higher profits amid the uncertainties.
