The stock market has been seeing short periods of peaks and troughs every two months since the central banks started their aggressive interest rate hike in March 2022. While July was a bull run for the TSX Composite Index, August started on a weak note. The TSX Composite Index fell 2.28%, as global stock markets reacted to the Fitch Ratings downgrade of the U.S. sovereign debt.
Such volatile markets create good opportunities to buy some fundamentally strong stocks that are falling because of the overall market sentiment. Their revenue and future growth prospects are still strong.
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Three stocks to buy confidentially after a market downturn
Even though the U.S. Fed hints that America can avoid recession, the sustained high-interest rate is affecting businesses with high leverage. Canada saw some high-yield dividend stocks slash dividends, sell assets and cut costs to service their debt. Three American banks collapsed in March, and hedge funds exited commercial real estate.
These trends have made investors reconsider investing in some dividend stocks, as they carry higher debt. But here are three stocks you can buy confidently after a market downturn.
Bombardier stock
Bombardier (TSX: BBD.B) stock dipped 18% since August 2, despite reporting robust second-quarter earnings and maintaining its strong 2023 guidance. The business jet maker’s shares are taking a hit from the overall market weakness. But the company’s fundamentals remain strong. It has a strong order book and is on track to meet its 2023 guidance of delivering 138 aircraft. It delivered 51 aircraft in the first half, which means the second half could see 87 deliveries.
To complete these deliveries, Bombardier used $222 million of its free cash flow on the new Toronto Global Aircraft Manufacturing Centre. While aircraft deliveries account for 78% of Bombardier’s revenue, the remaining comes from aftermarket services. More Bombardier planes in the sky mean more maintenance and repair revenue for aftermarket services.
A recession could slow Bombardier’s momentum. But its $1.2 billion liquidity and no debt maturity till 2024 gives it the financial flexibility to withstand a downturn. Bombardier has also expanded its wings in the defence sector, which could bring in more orders. All in all, these are growth days for Bombardier. Every dip in stock price presents an opportunity to buy.
Constellation stock
In this volatile market, Constellation Software (TSX: CSU) presents confidence in recovery on every dip. The company acquires software companies and uses the cash flow of acquired companies to buy more companies. This umbrella company uses the market downturn as an opportunity to accelerate the acquisition of its small vertical-specific software companies with stable cash flows. Hence, Constellation’s revenue growth accelerates after a market downturn.
| Year | Revenue | Revenue Growth |
| 2012 | $891.23 Million | 15% |
| 2013 | $1.21 Billion | 36% |
| 2014 | $1.68 Billion | 39% |
| 2015 | $1.84 Billion | 10% |
| 2016 | $2.12 Billion | 15% |
| 2017 | $2.48 Billion | 17% |
| 2018 | $3.06 Billion | 23% |
| 2019 | $3.5 Billion | 14% |
| 2020 | $3.97 Billion | 14% |
| 2021 | $5.1 Billion | 29% |
| 2022 | $6.62 Billion | 30% |
Some acquisitions are successful; some are not; however, the overall outcome is positive. Constellation’s stock price fell 5% after Fitch’s U.S. rating downgrade. Every dip is an opportunity to buy as the stock is in a long-term uptrend.
BCE
BCE (TSX: BCE) stock fell 14% since May as high-interest rates forced several dividend stocks to slash dividends. The telco has debt on its balance sheet, as it accelerated capital spending in 2020-2022 on the 5G infrastructure rollout. Moreover, higher capital spending reduced its free cash flow by 23.8% year over year in the second quarter. The company’s net earnings also fell 39% due to a one-off expense.
But all this did not affect its operations. Its continued revenue growth of 3.5% and operating profit growth of 2.1% shows that the business is doing well. The telco also maintained its 2023 guidance of a $3.87 dividend per share and 2-10% free cash flow growth, which means the second half could see significant cash flow.
BCE has never announced a dividend cut in its entire dividend history. In the worst-case scenario, it might pause dividend growth. The stock is almost oversold. Now is a good time to buy the dip and lock in a 6.9% yield.
