In the ever-evolving world of finance, investors constantly seek opportunities that offer a balance between security and growth. And what better time to explore this strategy than when certain stocks are deemed oversold? In this article, we’ll discuss how to identify oversold stocks and then delve into two Canadian stocks, Savaria (TSX:SIS) and Air Canada (TSX:AC), that currently present promising opportunities for Canadian investors.
How to identify oversold
Identifying oversold stocks is a crucial skill for value investors. These stocks often present a significant buying opportunity, as they have been beaten down more than their fundamentals suggest. Here’s how you can spot them:
1. Relative Strength Index (RSI): The RSI is a momentum oscillator that measures the speed and change of price movements. An RSI below 30 typically indicates that a stock is oversold and might be due for a rebound.
2. Fundamentals: Look beyond the technical indicators. Study a company’s financials, including revenue growth, earnings, and debt levels. An oversold stock with strong fundamentals is a more compelling buy.
3. Market sentiment: Sentiment can sometimes push a stock into oversold territory. Keep an eye on news, market sentiment, and external factors that might affect the stock’s price.
Now, let’s take a closer look at Savaria stock and Air Canada stock to understand why these two stocks are currently in oversold territory and why they might be appealing to dividend investors.
Savaria
Savaria, a leading company in accessibility and patient care solutions, has recently caught the attention of dividend investors due to its RSI of 16.41 as of writing. An RSI this low suggests that the stock is heavily oversold, but let’s dive into the company’s financials to see if it’s worth considering.
Savaria reported a dividend yield of 3.66%, making it an attractive option for income-focused investors. However, its shares experienced an 18% drop following the last earnings report. The company faced some headwinds in its European accessibility segment due to the implementation of a new enterprise resource planning (ERP) system, causing an estimated $5 million shortfall in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). However, Savaria’s North American accessibility segment witnessed a robust 12.1% organic increase in revenue.
Marcel Bourassa, president and chief executive officer of Savaria, expressed optimism about the future, stating, “We have confidence, with the ERP issues behind us, that the positive trend will continue.” The company is also implementing a new initiative called Savaria One to enhance operational and sales excellence. This commitment to growth and improvement makes Savaria a potential long-term hold for dividend investors.
Air Canada
Air Canada stock, one of the nation’s flagship airlines, has faced its share of turbulence during the pandemic. However, the stock now boasts an RSI of 22.4, indicating oversold conditions. While its shares have rebounded by 13% in the last year, they are still trading at half their pre-pandemic price.
Air Canada’s second-quarter results reveal its potential for a strong recovery. The company reported operating revenues of $5.4 billion, a 36% increase year over year, and an operating income of $802 million, marking a remarkable year-over-year improvement of over $1 billion. Furthermore, its adjusted EBITDA reached $1.2 billion with an adjusted EBITDA margin of 22.5%, showcasing solid financial performance.
Michael Rousseau, president and chief executive officer of Air Canada, expressed his gratitude to the team for their dedication and highlighted the airline’s efforts to protect the customer journey from disruptions. Despite some challenges, Air Canada remains confident in its ability to generate positive outcomes.
Bottom line
Canadian investors should pay close attention to oversold stocks as they can often provide excellent long-term investment opportunities. Savaria stock and Air Canada stock have significant potential for recovery and are prime examples of such opportunities in the Canadian market. Savaria’s commitment to growth and improved operations, coupled with Air Canada’s impressive financial rebound, make these stocks worth considering for your portfolio. However, as with any investment, thorough research and careful consideration of your financial goals are essential before making a decision.
