Tech and growth stocks have recovered some of their losses from last year. However, market conditions are still a far cry from the bubble of 2020-2021. Investors are simply too reluctant to invest in growth stocks when a Guaranteed Investment Certificate (GIC) offers yields as high as 5% risk-free.
Nevertheless, I believe interest rates will subside in the near future, which could make growth stocks attractive again. If we have another bull run, here are the top undervalued stocks that I’d buy right now.
Cheap stock #1
I don’t have this luxury retail brand in my portfolio, but I’m close to pulling the trigger. Aritzia (TSX:ATZ) has what it takes to become the next Lululemon. The company has captured the imagination of young shoppers and is now quickly expanding its footprint to the U.S., where margins are significantly higher.
The company’s revenue was up 37.8% in the most recent quarter. Over the past five years, revenue has compounded at an annual rate of 29%. The management team now expects revenue and gross profits to grow between 15% and 17% for the next five years.
Meanwhile, the stock is down 30% from an all-time high in January 2022. It now trades at just 26 times trailing 12-month earnings. I believe that is lower than justified for such a robust growth stock. Investors should take a closer look at this opportunity.
Cheap stock #2
Bull markets tend to hinge on innovative new technologies. We’ve seen this before with the dot-com boom, the social media boom and the crypto boom. I believe artificial intelligence (ChatGPT) will certainly be the tentpole of the next bull market. However, the commercial space tech sector is also a likely winner.
Elon Musk’s SpaceX has already cemented this industry’s potential. Now, commercial space stocks like MDA (TSX:MDA) are quickly gaining ground. Unlike SpaceX, MDA is a legacy space tech developer. The Brampton-based company helped create the original Canadarm on the International Space Station. Now it is actively working on a satellite constellation for the iPhone’s emergency features and another robotic arm for NASA’s Artemis moon mission.
MDA trades at 0.83 times book value and just 33 times earnings. It has orders worth $1.4 billion on its books while the company is worth only $840 million at current market price. I believe this is an overlooked opportunity for tech investors.
Cheap stock #3
Healthcare isn’t top of mind right now which is why healthtech firms like WELL Health Technologies (TSX:WELL) are so undervalued. The stock is down 45% from an all-time high in 2021. However, sales have skyrocketed over that period.
The company generated $569.1 million in revenue last year — 96% of which was recurring, according to Chief Financial Officer Eva Fong. The team now expects annual revenue of $665 million and $685 million this year. Meanwhile, the company is worth only $1.1 billion — implying a price-to-revenue ratio of 1.6.
WELL Health is a severely undervalued tech stock that you should probably consider before the next bull run.