The stock market is at an exciting point as the after-effects of the pandemic – the oil crisis and high inflation – are behind us. The economy is still weak as high-interest rates have kept the budgets tight for most Canadians. But this will change as the Bank of Canada is prepared to cut rates this year. This shift could trigger a mild recession followed by a recovery.
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Five stocks to buy in February 2024
As a beginner in investing, you can make the most of this shift and start by buying the dip. Here are five stocks that are near their lows and have the potential to surge in the recovery rally.
Air Canada
Air Canada (TSX:AC) stock continues to trade in the $18 range even after a full recovery of its revenue and profits to the pre-pandemic level. The $18 price was a pandemic trend. Otherwise, the stock traded around $27 to $30 pre-pandemic. It even rallied to $50 during its best year in 2019. There are multiple reasons why AC stock isn’t taking off.
- Investors are cautious about the current bearish momentum and avoiding companies with high leverage.
- The rising consumer complaints could have kept investors in a wait-and-watch mode till the airline services improved.
- The equity capital Air Canada raised during the pandemic has diluted shareholders’ interest. Higher profits or a share buyback could possibly trigger a long-term rally.
Nevertheless, flight bookings are likely to pick up in the summer, driving seasonal growth for Air Canada stock. I expect it to at least reach a $25 price by July 2024.
BlackBerry stock
BlackBerry (TSX:BB) stock is near its 20-year low due to the CEO change and cancellation of the company’s split into the Internet of Things (IoT) and cybersecurity businesses. The wait for the turnaround is testing investors’ patience, especially in the current market. But a recovery could bring back the cybersecurity contracts on hold and free up the $640 million in royalty revenue once automotive production ramps up (BlackBerry charges a fee at the design stage and royalty at the production stage for its QNX software deployed in new vehicles).
BlackBerry has good products, but it lacks in marketing execution. The new CEO could improve the execution and make the long-awaited turnaround a reality in the next two years. Even if the turnaround doesn’t happen, the company could probably get an attractive acquisition offer, boosting its share price. In either case, buying this 20-year dip could be worthwhile.
Magna International
Magna International (TSX:MG) stock has been hovering in the $70 range since it fell in February 2023 after weak 2022 earnings. But the 2023 earnings were all about recovery. Sales grew 13%, and net income more than doubled. This growth trend could continue at a normalized pace as light vehicle sales pick up. While the income statement showed recovery, the stock price remains under pressure over fears of a recession. Once investor confidence revives, the stock will likely ride the recovery rally and could give you double-digit growth. In the meantime, you can enjoy a 3.4% dividend yield.
BCE and Enbridge stock
While the above four are growth stocks all at their bottom, you can diversify your portfolio with some large-cap and stable dividend aristocrats like BCE and Enbridge. They have 50-plus years of history of paying dividends without any dividend cuts. As I said before, the market is bearish on companies with high leverage. Thus, BCE and Enbridge are trading 17% and 15% lower from a year ago. They are a great bargain buy, as you can lock in a yield of 7.9%.
BCE and Enbridge have slowed their dividend growth to 3% (from 5% in 2023 for BCE and 9.8% in 2020 for Enbridge). But they are market leaders in their respective areas and have strong upside. The two could reap the benefits of their investments later this year, setting the stage for a recovery rally in a strong economy.
