This year has been harsh for TSX dividend stocks and exchange-traded funds (ETFs) but strong for tech stocks like Shopify and Constellation Software. It reminds you of the lesson of buying the dip. When you see that Shopify’s stock price has doubled since January 1, and Constellation is trading above $3,000, you might wonder, “What if I had bought them during the dip?”
How do we implement the buy-the-dip strategy?
While I took the example of two successful stocks that surged significantly after a correction, some stocks never recovered from the tech bubble burst of 2022. For instance, Dye and Durham stock fell 19% year to date, as its revenue decline continued, and two of its acquisitions backfired due to competition concerns. While the stock rallied 63% after bottoming out at the end of October, I would avoid investing until the fundamentals improve. Its $1 billion net debt makes me worried.
To implement the buy-the-dip strategy, you should not just look at the stock price but also understand the reason behind the rally and see if it is sustainable.
Two TSX stocks to buy the dip
I have identified some growth stocks worth buying in the dip, as they make a strong case for recovery.
My first pick is business jet maker Bombardier (TSX:BBD.B). Its stock has dipped 8% this year and 33% from its March 31st peak.
Business jets are relatively resilient to inflation as price is not a concern for their customers. But business jets are not immune to global recession. The overall bear market momentum pulled down the stock price even after the company posted strong earnings and is on track to meet its 2025 outlook. It has repaid all its debt, maturing till 2025, giving it flexibility to sustain a recession.
Bombardier’s chief executive officer was optimistic about China reopening from lockdowns, expecting an order flow from the Asian country. While these hopes haven’t materialized, Bombardier never considered orders from China in its 2025 revenue outlook of US$9 billion. It also expects to improve its operating profit by 75% in the next two years. With the turnaround in full swing and a US$14.7 billion order book to keep Bombardier busy for two years, I have many reasons to be bullish on the stock.
Payments platform Nuvei (TSXV:NVEI) has been my pick since June, when the stock dipped 33% from its May high. But then came another sharp dip of 47% in August, making investors wonder if it is worth buying the dip. These dips came as Nuvei became twice the target of short-seller Spruce Point Capital, whose job is to point out problems and make money from the dip.
The short-seller cast doubt on Nuvei’s Paya acquisition and connection with the bankrupt crypto exchange FTX. Nuvei did feel the pinch from the crypto bubble burst as its platform allows payments in crypto. But the extent of the dip was significant. The accusations by the short-seller did not impact its revenue or gross transaction volumes. And if you look from the long-term perspective, Paya’s enterprise resource planning opens up avenues to process enterprise transactions.
While the expected outcome from the Paya acquisition has been slow, it doesn’t rule out its steady revenue growth of 16-20%. While Nuvei continues to report losses due to the financing cost of funding the acquisition, things could smoothen out in the medium term.
Nuvei stock has recovered partially from the dip and has the potential to rally further, as the holiday season boosts e-commerce volumes.
The technology ETF I am bullish on
Apart from the TSX tech stocks, the Nasdaq is recovering fast from its 2022 selloff. iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX:XQQ) surged 46% thanks to a recovery in the semiconductor supply chain and the generative artificial intelligence boom. This ETF gives you exposure to some of the best tech stocks and helps you benefit from the upcoming secular trends of 5G, autonomous cars, robotics, and the Internet of Things. The ETF can help you diversify your portfolio and generate double-digit growth in the long term.
The market dip is the time to buy growth stocks and ETFs. It increases your chances of a recovery rally and reduces the downside risk.