The Canadian stock market showcased a healthy recovery in 2023 after tanking by nearly 9% in the previous year. While the TSX Composite Index rose 8.1% in 2023 with the help of strong upward momentum seen in the final quarter of the year, many growth stocks still ended the year deep in the negative territory, making them look undervalued to buy for the long term.
Buying such fundamentally strong growth stocks when they look cheap could potentially lead to significant returns in the long run, especially as the economy stabilizes and continues to grow with hopes of lower interest rates. For long-term investors looking to get ahead in the Canadian market, here are two of the best growth stocks to consider buying now.
Aritzia (TSX:ATZ) is the first Canadian growth stock that I find undervalued after it ended the year 2023 with 42% losses despite rising more than 16% in the fourth quarter. It’s a Vancouver-headquartered integrated design house and apparel retailer with a market cap of $3 billion as its stock trades at $27.07 per share.
In its fiscal year 2023 (ended in February 2023), Aritzia posted a solid 21.6% year-over-year positive growth in its adjusted earnings to $1.86 per share with the help of an even stronger 47% increase in its annual sales. This sales growth primarily reflects the company’s expansion strategy in the United States market.
However, the recent weakness in consumer spending due mainly to a tough macroeconomic environment has affected Aritzia’s sales in recent quarters. This could be the primary reason why its share prices fell sharply last year. Nonetheless, it’s noteworthy that the company’s revenue figures have still been exceeding analysts’ expectations for 14 consecutive quarters.
Moreover, Aritzia’s strengthening e-commerce sales and continued focus on further growing its footprint in the U.S. market could drive a healthy recovery in its financials once the macroeconomic scenario starts improving in the near term, which should lead to a strong rally in its share prices.
Air Canada stock
Air Canada (TSX:AC) could be another beaten-down growth stock in Canada to consider in 2024. The largest Canadian passenger airline company currently has a market cap of $6.7 billion, as its stock trades at $18.48 per share after falling for four consecutive years.
Even as its share prices jumped nearly 29% in the first of 2023, Air Canada ended the year 2023 with 3.6% value erosion. Although the company remains on track to post a strong post-pandemic financial recovery in 2023, investors fear that macroeconomic uncertainties could affect air travel demand in the coming quarter, which could make the airline company struggle again.
On the positive side, the Canadian and American central banks have recently indicated their intentions to slash interest rates in 2024, which should give a boost to economic activities, potentially leading to higher demand for air travel. Considering that scenario, I find Air Canada stock highly undervalued at current levels to buy for the long term, especially after it has lost nearly 62% of its value in the last four years.