Buying the dip in shares of fundamentally strong companies is a solid strategy to create wealth. This method allows investors to acquire stocks at reduced prices, enabling them to capitalize on potential gains during the subsequent recovery in share prices. However, investors must understand that there could be solid reasons behind a decline in a stock. Therefore, emphasis should be on companies facing temporary challenges and poised for a swift rebound in the future.
Given this context, let’s explore three undervalued Canadian stocks you can buy now and hold for the next five years for big profits.
Aritzia
Aritzia (TSX: ATZ) stock has given up a significant portion of its market cap. Shares of this design house have lost over 48% of their value year to date. The macroeconomic headwinds impacting consumers’ discretionary spending and lack of newness in its offerings weighed on its financials and stock price.
While Aritzia faces near-term macro headwinds, the company focuses on creating and introducing new styles. Moreover, issues related to supply have eased. This implies that now could be an excellent time to buy Aritzia stock. The introduction of fresh and innovative products, the opening of new boutiques, and the strength in its e-commerce business will lead to a reacceleration in its top line. Further, its focus on pricing, cost-cutting initiatives, and the establishment of a new distribution centre will support its margins.
It’s worth highlighting that Aritzia’s management has maintained its medium-term outlook. The company’s revenue is forecasted to grow at a compound annual growth rate of 15-17% through fiscal 2027. Furthermore, its bottom line growth could exceed its top line, which will significantly lift its share price in the coming five years.
Cargojet
Cargojet (TSX: CJT) stock could be a solid addition to your portfolio right now. It has dipped about 13% in one year. Nonetheless, the spike in near-term demand due to the increased retail activity during the holiday season will support its recovery. Meanwhile, its focus on driving efficiency, long-term customer contracts, reacceleration in e-commerce demand, and its extensive domestic network position it well to deliver solid financials in the coming years, leading to the recovery rally in Cargojet stock.
Cargojet will benefit from its long-term agreements, underpinned by minimum volume guarantees and renewal options. Also, its strategic partnerships with leading logistics brands are earnings accretive. Additionally, Cargojet’s partnerships with top logistics companies will stimulate demand for all of its offerings, including charter, aircraft dry lease services, and ACMI (Aircraft, Crew, Maintenance, and Insurance). Overall, Cargojet stock is backed by solid fundamentals, poised to deliver notable gains in the next five years.
Nuvei
Nuvei (TSX: NVEI) stock has shown a solid recovery in the recent past. However, the stock has lost more than 12% of its value in one year. Also, it has dropped nearly 47% in three years. This dip in value presents a solid entry point for medium-term investors.
Shares of this financial technology company are likely to benefit from the higher volumes, which will support its top-line growth. Further, its focus on cost management and driving efficiency across the company will enable it to deliver sustainable profit, enhance cash flow generation, and accelerate debt repayment.
Nuvei is focused on generating incremental growth via new customer acquisitions and winning market share. Moreover, it is expanding its technology use cases, which is increasing its addressable market. Overall, this payment processing company is well-positioned to deliver notable growth and expects its top line to increase by 15-20% annually in the medium term, which supports my bull case.
