Many tech stocks saw a correction in the second half of July, as the market priced in an interest rate hike by the U.S. Fed. August could see the bullish sentiment return in the second half as the market expects this to be the last rate hike. While the Fed might keep interest rates high for the rest of the year, companies with high debt could see a dip in stock price as higher interest expenses pull down margins.
Top stocks to buy under $50 in August 2023
Many economists expect a recession to hit anytime as high-interest rates seep into the economy. If a recession does hit, U.S. tech stocks could take a hit. But Canadian tech stocks would be better off as their price is not as inflated as their U.S. counterparts. Here are three TSX stocks under $50 that could sustain an economic downturn and surge in an economic recovery, making them an ideal investment for an uncertain market.
Nuvei stock
I have been bullish on Nuvei (TSX: NVEI) stock since it dipped in May. I couldn’t see any reason in its fundamentals for a fall as drastic as 38% between May and June. Such dips are short-lived or rather an opportunity for value seekers to buy cheap. The cause of the fall was short-seller Spruce Point which questioned Nuvei’s acquisition of U.S.-based Paya Holdings, which was losing market share.
Nuvei took US$1.3 billion to acquire Paya in cash. A cash deal shows the company’s confidence in turning the acquisition into an opportunity way bigger than the deal. Nuvei acquired Paya for its technology to integrate with enterprise resource planning (ERP). Even if Paya was not doing well, Nuvei is benefitting from Paya’s tech. The Paya acquisition has opened the enterprise market for Nuvei’s payments platform. The payments platform has secured several multinational clients that do significant cross-border transactions.
The upcoming holiday season could see a volume uptick and drive Nuvei’s earnings. Moreover, any optimism around cryptocurrency transactions will benefit Nuvei as the platform allows crypto transactions.
The stock corrected 10% in the second half of July. It could witness seasonal growth in the second half as holiday season sales gather momentum. Also, an economic recovery could boost enterprise transaction volume and drive Nuvei’s revenue and stock price in the long term.
Dye & Durham stock
While other tech stocks soared in the first half, Dye & Durham (TSX: DND) stock plunged as much as 36% as two acquisitions dragged on for a long time. DND used the acquisition route to grow its business.
While many of its acquisitions were successful, the U.K. regulator rejected TM Group U.K.’s acquisition over competition concerns. In July, DND finally sold TM Group to Aurelius and used the proceeds to reduce debt in a high-interest rate environment. Its other AU$854 million Link acquisition also fell through, removing the need to take debt.
With problematic acquisitions out of the picture, DND can focus on growing organically. DND’s main source of revenue is its Unity platform, used by real estate and professionals to enhance workflow. The stickiness of the software has helped DND earn regular cash flows.
The stock has recovered from its May dip and could grow further when the real estate market recovers.
Power Corporation of Canada
Unlike the above two stocks, Power Corporation of Canada (TSX: POW) is a contrarian stock. This financial services holding company could take a hit if a 2008-like crisis occur. A high interest rate for a longer period could increase delinquencies and pull down bank stocks. But POW can survive a crisis while continuing to pay dividends because of its diversified portfolio of insurance and asset management companies. This stock can pay dividends even in a crash like it did in the 2008-2010 period.
Bottom line
The above three stocks have started their growth rally. Now is the right time to jump in before it is too late.
