The U.S. banking crisis brought an opportunity for value investors, as it temporarily pulled down stocks of some fundamentally strong companies. The TSX Composite Index fell 5.25%, with bank stocks and stocks of companies with higher leverage taking a sharp dip. Now is the time to buy value stocks at dirt-cheap prices and lock in a recovery rally in the next few years.
Three TSX stocks to buy in the dip
If you have $2,000 in your Tax-free Savings Account (TFSA), here are three stocks across the market cap and sectors to buy and hold.
- Bombardier (TSX: BBD.B)
- BlackBerry (TSX: BB)
- Royal Bank of Canada (TSX: RY)
Even if you own these stocks already, look at your purchase cost. If your cost per share is lower than their current price, keep holding them. Otherwise, buy more shares and reduce your average cost per share, as they have upside.
Bombardier stock
While utility and real estate companies are shedding profits due to rising interest rate burdens, business jet maker Bombardier is raising its outlook. The company struggled to stay on the TSX 60 in 2021. But the new chief executive officer offloaded 45% of the debt from Bombardier’s balance sheet, freeing it from debt maturities till 2024. As the balance sheet lightened, the company got the flexibility to invest in the business and began its turnaround.
Bombardier beat its 2022 revenue and cash flow guidance, accelerated its debt repayment, and increased its revenue target as its order backlog increased ($14.8 billion).
The company has raised its 2025 revenue target from $7.5 billion to $9 billion after reporting a $6.9 billion revenue in 2022. The key revenue driver was a 25% jump in its aftermarket service revenue. It expects to deliver 138 aircraft in 2023 (123 in 2022) and earn $7.6 billion in revenue. Larger orders mean more maintenance contracts means higher cash flows. Bombardier might continue repaying its debt to reduce its interest expense and report a net profit.
The March dip pulled Bombardier stock down more than 17% in two weeks, but the updated guidance pushed the stock up 13% in a week. The stock is a buy, as long as it keeps breaking its guidance. You can buy 10 shares of Bombardier for $650 and hold it till 2025.
BlackBerry stock
BlackBerry is a highly volatile stock that can skyrocket when economic conditions improve. In December 2022, when the market was bearish, BlackBerry stock fell 38% and recovered with a 38% jump within a month (January). It has again dipped 12% after the U.S. banking crisis created a market dip.
BlackBerry is banking on cybersecurity renewal contracts from government agencies and pick-up in automotive sales. Around $560 million of its royalty revenue from car production is unrealized, as semiconductor supply shortage delayed car production. Now, the recessionary environment has delayed automotive-related revenue. Moreover, the company is negotiating the sale of its licensing business for $600 million.
Any dip is an opportunity to buy the stock, as it could rise to its average trading price of $8 in a growing economy, representing a 50% upside. You can buy 100 shares of BlackBerry for $530 and hold it till the stock reaches $8.
Royal Bank of Canada
RY stock fell more than 7% after the U.S. banking crisis and is trading near its previous bear cycle low of less than $127. Even though RBC earns 24% revenue from the United States, it is well capitalized to handle any exposure from the U.S. banking contagion. RY is growing its Canadian market share by acquiring HSBC Canada for $13.5 billion. It will open more opportunities to cross-sell to over 780,000 retail and commercial customers of HSBC Canada.
Royal Bank of Canada stock could give you market returns, a 4.16% dividend yield, and dividend growth in a strong economy. You could invest around $800 and buy six shares of RBC and get a $3.68 dividend every year.
