Better Buy: Shopify or Algonquin Stock?

Shopify (TSX:SHOP) stock and another top Canadian juggernaut are worth considering for 2023.

| More on:

Image source: Getty Images

It seems like this bear market is never going to end, as the decline looks to extend into the new year. After so many failed bear market bounces, it’s hard to remember what it was like for stocks to go up. Dips haven’t been nearly as buyable as they used to be.

The good news is that bear markets don’t last forever, even though many of us have been conditioned to expect nothing but a bitter taste after hitting the buy button on stocks or bonds. A bull market is never as far away as we think, though. Whenever the bull does land, it tends to hit the ground running, leaving the bear market in the dust.

Now, 2023 isn’t guaranteed to see the birth of a new bull. However, I view the bear as getting a tad long in the tooth, as investors continue to ditch stocks over the looming recession. Indeed, quarterly earnings will dictate where stocks go from here. The real question is if firms can surpass expectations, given the macro headwinds at hand.

In this piece, we’ll look at two of the bigger losers of 2022. Shopify (TSX:SHOP) and Algonquin Power & Utilities (TSX:AQN) went from portfolio must-haves to falling knives with investor doubts about their future growth profiles and fundamentals.

Indeed, the valuation reset has been vicious with both names. Few people saw Shopify or Algonquin stock crashing more than 50%. Though, I did warn of the severe overvaluation in shares of Shopify before the stock fell off a cliff, the Algonquin crash caught me (and so many others) by surprise.

In any case, let’s weigh in on the two battered stocks to see if any are worth a buy right here for the next year and beyond.

Shopify stock

Shopify stock seems to have bottomed out a while ago, but with tech and growth falling under pressure yet again, I’d say it’s too early to conclude that new lows can’t be reached in the first quarter of next year. The stock faces a profound amount of pressure, as investors reconsider paying premium multiple for forward-thinking growth.

When it comes to Shopify, the company is all about growth over the long run. Investors want to see big profit, and they want it now. Amid the more than 80% slump, though, I think SHOP stock is an intriguing option for those who are willing to handle the vicious moves. Sharp moves in either direction are expected, as the company looks to integrate prior acquisitions while improving upon its impressive e-commerce platform.

Even after such a vicious fall, I’m unsure if Shopify stock is “cheap” in a traditional sense at a 8.3 times price-to-sales ratio. For the calibre of growth you get, I’d argue that’s a fair multiple to pay.

Algonquin shares

Algonquin is another confusing story that caught many investors off guard. There’s now doubt about the sustainability of the dividend, as the firm pulls back on its initial growth plans. Many analysts covering the name have downgraded shares after the fact. Still, I think the stock is getting too cheap for its own good, now that income chasers have likely reconsidered the name amid its swelling yield.

The 11% dividend yield seems too good to be true. And it probably is. As such, I’d not buy Algonquin for the high payout. Rather, I’d look to buy the name for long-term gains.

Shares are too cheap at 1.7 times price to sales. Yes, Algonquin has felt the heat of higher rates. But it’ll adapt, and the new valuation seems more than reasonable, in my opinion. Despite slowed growth, Algonquin is still a compelling renewable energy company with prized utility assets.

Sure, AQN stock is tougher to value. But I think the new multiple tilts the tables in the favour of dip-buyers.

Better buy: SHOP or AQN stock?

I prefer AQN stock here, as it’s a steadier firm that faces a somewhat less cloudy future. Shopify stock remains at the mercy of moves made by high-growth tech. That’s not a place I want to be as rates continue soaring.

Regardless, I think both 2022 losers have a stage set for a far better 2023.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

More on Investing

calculate and analyze stock
Dividend Stocks

TFSA: Invest $20,000 and Get $867/Year Without Lifting a Finger

Compound passive income by investing tax-free in your TFSA. Check out this mini-portfolio that could turn $20K into $867/year in…

Read more »

A bull and bear face off.
Energy Stocks

2 Top TSX Energy Stocks to Buy as Crude Oil Is Set to Soar Higher

TSX energy stocks might keep topping charts in 2023 as well.

Read more »

money cash dividends

Sitting on Cash? These 2 Stocks Are Great Buys

The best stocks to buy now include Fiera Capital (TSX:FSZ).

Read more »

Young woman sat at laptop by a window
Bank Stocks

Could BMO Stock Be a Big Winner in 2023?

Long-term investors should take a closer look at BMO stock as a potential core holding, especially on dips.

Read more »

retirees and finances
Dividend Stocks

How to Create a Million-Dollar TFSA in Two Decades

Your TFSA could create riches you didn't know were possible, but only if you commit again and again to your…

Read more »

edit U-turn

2 Bounce-Back Plays for Young TFSA Investors

Cineplex (TSX:CGX) and Corus Entertainment (TSX:CJR.B) are deeply discounted stocks to entertain your TFSA.

Read more »

Target. Stand out from the crowd

3 Growth Stocks I’d Buy More of if They Took a Dip

Tech stocks like Quarterhill (TSX:QTRH) may have hit a bottom recently.

Read more »

A plant grows from coins.
Dividend Stocks

TFSA Top Stocks: 2 Cheap Dividend-Payers to Buy Before January Ends

TFSA investors can appreciate dividend-paying stocks like Barrick Gold at these modest valuations.

Read more »