New investors looking to jump into some of the battered tech and growth names after last year’s growth-centred market selloff are on the right track. The boom of 2021 and bust of 2022 are in the history books.
Now, all eyes are focused on the rate-induced recession and how firms’ earnings streams will cope. Undoubtedly, recessions can be a scary thing to invest through. But they don’t have to be. Not every recession implies a 50-55% fall in the S&P 500. With many expecting the coming recession to be mild, there are numerous scenarios that could see beginner investors walking away with gains in 2023.
Chasing rallies in the hardest-hit corners of the market is always risky. So, temper your expectations, think long term, and always stay in the know with a firm under question. You see, a lot of growth companies that skyrocketed in 2021 deserved to get pummeled. Of course, the isolated bubbles that burst dragged down a lot of stocks that probably didn’t deserve to endure such falls. It’s these such names that are worthy of consideration for those with the courage to go against conventional wisdom.
In this piece, we’ll consider two Canadian stocks that seem oversold and better positioned to rally over the next several years, as the rest of the market finds its footing.
First up, we have supply-chain management software developer Kinaxis (TSX:KXS), which is down just north of 30% from its peak levels. Though pandemic lockdowns have been lifted for quite some time, supply-chain woes have lingered. With that, demand for supply-chain solutions could continue to be robust throughout the year. Management expects things to pick up, even as recession headwinds continue to mount.
With two consecutive quarter earnings per share misses in the rearview mirror, I think estimates are a tad mild, as the firm looks to get back to its winning ways. With a modest 9.8 times price-to-sales (P/S) multiple, which is just shy of the 10.9 P/S software industry average, I view Kinaxis as an intriguing growth play to buy while it’s being weighed down.
Whether or not Kinaxis is at an inflection point, I think long-term investors are getting a great risk/reward scenario here for one of Canada’s most enticing mid-cap tech plays.
Nuvei (TSX:NVEI) is a growth stock that’s suffered an even harder hit to the chin. The stock’s down around 74% from its 2021 peak. All the initial public offering hype has evaporated in a hurry.
At 5.5 times P/S, Nuvei isn’t all too pricey of a play for investors seeking exposure to the global payments scene. Amid the slump, Nuvei has continued to bring on new payment partners, while taking advantage of strategic mergers and acquisitions opportunities within the space. In prior pieces, I’d praised Nuvei for braving the market wreckage by buying Paya in a deal worth US$1.3 billion. Such a deal will help Nuvei bolster its longer-term growth.
Though coming quarters will be rocky, I think growth-focused investors should keep the name atop their radars.
The bottom line
Kinaxis and Nuvei shares have both experienced reliefs in recent weeks. Nobody knows if recent gains will hold. Regardless, I think new investors willing to hang in for the next five years have the odds tilted on their side, especially as fears of rate hikes turn into hopes for rate cuts. If the Bank of Canada does pivot (I think they will), it’s risk-on names like Kinaxis and Nuvei that could lead the averages higher.