Almost all discounted, even beaten-down stocks experience a recovery, with the possible exception of some that are unable to rise from the depths they have been pushed into by market forces or their own weaknesses. However, not all recoveries are similar. Many of them are too slow to be considered viable alternatives for growth stocks, while others may be too limited.
However, the recoveries of fundamentally strong growth stocks are quite likely to be compelling. The end of their bear market phase and the beginning of the bullish phase may be hard to pin down, but if you can do that, the returns may be significant.
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A financial services company
goeasy (TSX:GSY) is a financial services company that has experienced significant growth over the past three decades by catering to a market ignored by big banks — i.e., people with bad/weak credit.
The company started with loans for items like furniture, appliances, etc. The lease-to-own model of its “home loans” was quite successful. But personal loans became a more significant catalyst for its growth, and now, they make up the bulk of a company’s business. goeasy has an impressive national footprint — over 400 locations.
goeasy is among the most powerful growth stocks of the last decade and has returned over 650% to its investors over that period through price appreciation alone. The growth would have been much more significant if not for the brutal correction the stock is going through that has resulted in a 51% discount.
Even though the stock is having a hard time when it comes to finding a recovery groove, there is a strong possibility that the stock is ready for a comeback.
The company is almost undervalued and trading far below its price projections. This makes it a perfect time to buy the company for its dividends and long-term growth potential, which will initially be fueled by a recovery.
A cargo airline
Another company that has, so far, found it hard to break out of a slump is Cargojet (TSX:CJT), the largest cargo airline in Canada. With a sizable fleet (49 planes) and +70 routes that the company flies, it hauls about 25 million pounds of cargo every week.
The company specializes in time-sensitive deliveries, making it an ideal partner for several e-commerce businesses, including the e-commerce giant Amazon.
Valuation is one of the major reasons to think that Cargojet is making a comeback. It used to be significantly overvalued when it was bullish. Now that it has been slipping down persistently since Nov. 2020 and is close to losing about two-thirds of its peak value, the valuation has become quite reasonable.
It’s also financially healthy. With most of its fundamentals, there is a strong probability that enough optimism about the stock will trigger a long-term recovery phase.
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Foolish takeaway
At their current prices, both stocks have the potential to double your capital if you buy now and make a full recovery. But if they enter a bull market phase similar to the growth phase in the last decade, they may prove far more potent than merely discounted stocks ready for a comeback.
