2023 started off on a stronger note for the Canadian stock market. The S&P/TSX Composite Index rose by over 6% toward the end of January 2023. However, the rally slowed down to a few weeks of horizontal movement before declining over the last two weeks. As of this writing, the Canadian benchmark index is up by 3.82% year to date but down by almost 3% from its January 2023 high.
The downturn suggests the onset or possibility of a recession. While it might worry many stock market investors, savvier Fools can view this as an opportunity to invest in high-quality stocks trading at discounted valuations.
Not every stock that declines during market corrections is an undervalued stock. Oftentimes, a downturn in share prices on the stock market during a correction is justified. If the underlying company has strong fundamentals and a wide enough economic moat to come out stronger on the other side, it might be trading for lower than its intrinsic value.
To this end, I will discuss two potentially undervalued stocks that can be excellent buys right now.
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Brookfield Corporation
Brookfield Corporation (TSX:BN) boasts a massive $72.16 billion market capitalization, and it has its hands in virtually every sector of the global economy. From well-established sectors like real estate and private equity to growing sectors like renewable power, investing in Brookfield Corporation stock is similar to owning a diversified portfolio in one asset.
Boasting assets under management over $789 billion, Brookfield stock is a powerhouse. One of the largest alternative asset managers worldwide, it has more than enough liquidity to see it through market downturns.
Besides easily powering through economic uncertainty, the company is well positioned to use downturns to its advantage. With plenty of cash to deploy, recessions allow Brookfield’s management to sweep up valuable assets for its portfolio at a bargain. As of this writing, Brookfield Corporation stock trades for $46.19 per share. Down by 16.01% from its 52-week high, it can be an excellent stock to buy right now.
Aritzia
Unlike Brookfield Corporation, Aritzia (TSX:ATZ) is not a stock to own for diversity. However, it can be a great investment for long-term wealth growth. The $4.86 billion market capitalization women’s fashion brand headquartered in Vancouver might seem an unlikely bet for an undervalued stock, especially during a downturn.
However, it might be just the right time to buy its shares. Selling various lifestyle apparel through upscale retail stores in Canada and the U.S., the pandemic also forced Aritzia to expand its e-commerce segment.
The company’s rapid growth for several years was already impressive. With its e-commerce platform in full flow, the company has increased its sales twofold in just the last six quarters.
The selloff did not spare ATZ stock, primarily because it sells discretionary goods, and people cut costs during recessions. However, when the dust settles and sales volume increase again, it can deliver stellar returns through capital gains. As of this writing, Aritzia stock trades for $42.53 per share.
Foolish takeaway
These two undervalued TSX stocks boast growth potential beyond recovering to valuations before the recent pullback. With strong business models, high-growth potential in their respective industries, and plenty of liquidity to weather the current downturn, Brookfield Corporation stock and Aritzia stock can be terrific long-term investments to buy and hold in your self-directed portfolio.
