Everybody loves a good comeback story, and investors may love it more than others — especially if they can find the right recovery stocks at the right time. It’s a long shot and a strategy that usually carries a healthy amount of risk.
Learning how to pick stocks that are currently beaten down but may make a strong recovery in the near future can be tricky. But, if done right, it can boost your portfolio significantly in a relatively short time.
In the current market, two stocks might fit the bill. If you buy and hold them in your Tax-Free Savings Account (TFSA), and they recover/grow as expected, you might be able to build a decently sized nest egg in your tax-free account.
An airline stock
One lesson SARS and COVID has taught us is that airborne viruses can spell doom for airlines that carry passengers. Just the thought of being trapped with someone who might be carrying a deadly virus for hours in a metal tube thousands of feet in the air is enough to discourage most people from taking a plane.
But what about cargo airlines? The cargo airline business has proven to be more resilient against pandemics but, sadly, not against market dynamics. This is why Cargojet (TSX:CJT), which was once one of the best growth stocks in Canada, is currently trading at a 55% discount from its 2020 peak. The decline of this stock has lasted far longer than most other stocks, and it’s still underway.
However, this decline hasn’t done much to harm the fundamental strengths of this company. It’s still one of the largest players in cargo air traveling and specializes in time-sensitive deliveries. The airline boasts 98.5% on-time arrivals, making it ideal for individuals or businesses aiming to minimize delays and enhance predictability when it comes to their deliveries.
The airline has grown its fleet to a decent size — 38 aircraft that cover over 71 routes. The financials are quite healthy, which is also reflected in a healthy price-to-earnings ratio of 11.5%, endorsing its recovery potential.
An alternative financial company
goeasy (TSX:GSY) is a boon for Canadians that require personal loans but do not have a decent enough credit score to reach out to the banks. This alternative financial company offers loans to people with relatively poor credit. It also helps them grow their credit score, as they improve their credit history by making timely repayments.
For an alternative finance company, goeasy is massive. It has more branches than most credit unions and small banks in Canada (400) and has expanded its services to include a variety of home loans.
As a stock, it’s a compelling pick for its dividends, especially now that it’s trading at a massive discount that has grown its yield to a decent level (4.1%) compared to its historical yield. However, goeasy was also one of the most powerful growers in the last decade, and, in a healthy market, it may get back on that track. A recovery from the 57% discount it’s sporting right now would give its growth a major boost.
Foolish takeaway
The two stocks, assuming that they don’t just recover but start growing like they used to before the pandemic, can make for compelling long-term holdings. Even in their current dismal form, the overall returns in the last two decades are above 1,000% for both stocks. That’s more than 100% a year.
