3 Oversold Stocks to Buy Before They Bounce Back

Here’e why oversold TSX stocks such as Brookfield Renewable should be part of your shopping list in Q4 of 2023.

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Buying shares of oversold stocks can help you deliver outsized gains when investor sentiment improves. The ongoing stock market selloff has driven valuations of companies across sectors lower, allowing you to buy the dip. The time is ripe if you are hunting for a bargain. Here are three oversold stocks you can buy before they bounce back.

Brookfield Renewable stock

Rising interest rates have acted as a massive headwind for capital-intensive clean energy companies, including Brookfield Renewable (TSX:BEP.UN). Down 55% from all-time highs, Brookfield Renewable stock currently offers shareholders a dividend yield of more than 6%, which is quite tasty.

Despite a debt-heavy balance sheet, Brookfield Renewable remains a top investment choice for income and value investors. The company sells the power it generates to utilities and other corporate buyers under long-term PPAs (power-purchase agreements), resulting in stable cash flows. Additionally, the rates on these PPAs are indexed to inflation while allowing BEP to lock in higher rates as legacy contracts expire.

Brookfield Renewable has increased its dividend by at least 5% in the last decade. In the long term, it expects the payouts to rise between 5% and 9% each year.

Brookfield Renewable expects to expand its FFO (funds from operations) between 7% and 12% per share annually through 2028. Currently, higher power prices, elevated inflation, and a robust backlog of capital growth projects make BEP stock a compelling bet.

Analysts remain bullish and expect BEP stock to gain almost 69% in the next 12 months.

Tidewater Midstream and Infrastructure stock

Tidewater Midstream and Infrastructure (TSX:TWM) is a diversified midstream and infrastructure company. Valued at a market cap of $433 million, it focuses on natural gas, natural gas liquids, refined products, and renewables.

Tidewater stock is down 40% from all-time highs and currently offers shareholders a yield of 4%. It is forecast to increase sales by 56% year over year to $2.65 billion in 2023, while adjusted earnings are forecast at $0.23 per share.

Priced at 0.16 times forward sales and 4.5 times forward earnings, Tidewater stock is quite cheap. It currently trades at a discount of 65% to consensus price target estimates.

Magna International stock

The final oversold stock on my list is Magna International (TSX:MG). The TSX stock is down 43% from all-time highs, increasing its dividend yield to 3.4%. Magna is an automotive supplier and is quite cheap at current prices. Trading at 10 times forward earnings, Magna stock is forecast to increase earnings at an annual rate of 37% in the next five years.

Magna and its peers are undervalued due to the uncertainty surrounding global light vehicle sales, which may be impacted due to interest rate hikes, rising inventory levels, and a sluggish macro economy.

However, Magna International is fast gaining traction in the electric vehicle (EV) segment. Several of its products, which include lighting, seating, battery enclosures, exteriors, and mirrors, are used in new-age EVs. The company also disclosed it is investing $790 million in three facilities to support the production of Ford’s electric truck.  

Magna stock currently trades at a discount of 35% to consensus price target estimates.

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 Aditya Raghunath has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners and Magna International. The Motley Fool has a disclosure policy.

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