How Safe Are These 3 Brutally Discounted Stocks?

A financially strong company with a healthy and relevant business model can be a great pick at a discounted price, unless the discount indicates an insidious flaw.

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Discounted stocks tend to stand out in a bull market. For some of these stocks, the factors triggering the discount are typically harmless, but in some cases, the discounts may stem from some fundamental weaknesses (temporary or long-term). It’s difficult to distinguish which is which, but if you can accomplish that, you can safely take advantage of these discounts.

The TSX is neither properly bullish nor bearish right now but is fluctuating between the two trends. It has its fair share of brutally discounted stocks, three of which are worth looking into.

A financial services company

ECN Capital (TSX:ECN) is a B2B financial services company that caters to banks and other financial institutions. It offers them management and advisory solutions and has developed an impressive customer portfolio, including some of the largest US banks.

The stock is trading at a 79% discount to its December 2021 peak. The overall trajectory has mostly been downward, but the stock took a nose-dive in December 2021.

A series of unattractive returns have exacerbated the situation for the stock, but they can be traced back to its business model and area of focus. ECN Capital specializes in manufactured home, RV, and marine financial solutions, and the latter industry as a whole is not exactly thriving right now.

A significant revenue decline that has persisted for multiple quarters makes ECN a relatively risky investment right now, but if the company makes a solid financial recovery, the stock may bounce back as well.

An organic food company

The organic food industry has experienced decent growth in the last decade, and even though the growth has slowed down in the last few years, it’s not enough of a trigger to explain SunOpta’s (TSX:SOY) current 66% slump (from its November 2022 peak). However, the company’s finances have been a trigger for this fall. The company incurred a net loss of about $18.8 million in Q2 2023.

SunOpta sold its sunflower business in October 2022, which may have triggered the slump that started in November and continues to this day.

Weak financials have perpetuated the downward trend, and massive debt with almost no cash reserve/investment hasn’t helped the situation. It may remain a relatively risky buy until SunOpta can turn things around financially.

But it’s worth noting that multiple institutional investors have recently increased their stake in the company, and big money moving into a company can be a good sign.

A tech company

Despite its association with a well-established telecom giant and healthy financials, Telus International (TSX:TIXT) has continued to underperform the market and sector. It has lost over 70% of its value since joining the TSX in February 2021, and the downfall became even more aggressive recently when the company revised its outlook and incurred a loss.

The company also carries a significant amount of debt, but not enough to weigh it down, especially considering its revenue history. Operationally, the company specializes in user experience (UX), but it’s also aiming to establish a strong presence in the artificial intelligence (AI) market by building an AI community.

Despite its less-than-ideal financials, Telus International appears less risky compared to others. It hasn’t managed to trace the bullish trend of other tech stocks (so far), but that may change in the future.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Telus International made the list!

Foolish takeaway

Even if they don’t have fundamental weaknesses or business models that require a complete overhaul to become relevant, two of the three stocks might not be very safe right now. Even the safest of the three, Telus International, may not be an attractive buy right now despite its discount. Waiting for the stock to turn bullish might be wise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Telus International. The Motley Fool has a disclosure policy.

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