The size of the discount is often considered the primary appeal of a discounted stock. While it’s an important consideration when trying to identify the right discounted stock to buy, it shouldn’t be the only element you look into. You have to evaluate these stocks based on the projected recovery timeline, recovery potential, fundamental strengths of the underlying businesses, and several other reasons.
Also, if you are having difficulty finding the right discounted stock to buy, you may look into the discounted or recovering sectors and market segments and choose the strongest stocks from those sectors/market segments.
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A crypto stock
If we look at the big two — i.e., Bitcoin and Ethereum, the crypto sector seems to be recovering strongly. The two are up 61% and 51%, respectively. Ironically, this hasn’t been reflected in all crypto mining stocks and giants (that are a more practical way of investing in cryptocurrencies) yet, including Hut 8 (TSX:HUT).
It’s one of the largest publicly traded crypto miners in the world, with six mining facilities, 839 megawatts of power management on its portfolio, and over 9,000 Bitcoins on its balance sheet.
It has over 200,000 individual miners in its portfolio, with a total hash rate of 22.3 EH/s (exa hash). The company is also expanding its services to high-performance computing, currently in high demand for artificial intelligence (AI) and machine learning model training and computing.
Hut 8 has five such high-computing facilities under its banners. Despite its overlap with two booming (artificial intelligence in general and crypto for now) market segments, the stock is still 27% discounted from the beginning of this year.
However, this should be perceived as an opportunity, not a vulnerability. At its discounted state, the stock is perfectly positioned to help its investors get significant returns once it starts following the momentum of the underlying crypto assets.
A green stock
For individuals interested in ESG (environmental, social, and governance) investing, Ballard Power Systems (TSX:BLDP) may already be an appealing option. It’s one of the big names in fuel cell technology, and despite the challenges this “green” segment is still facing, it already has an impressive portfolio of clients and services.
The stock did experience a powerful growth surge a few years ago, but since hitting the peak in 2021, its trajectory has mostly been downward, and it’s trading at a 91% discount from that peak.
Just this year, the stock has fallen about 12%, which, even though it is an improvement over the previous pace, is still an example of its long downward spiral.
But the reason why this heavily discount stock might be worth considering is that hydrogen is currently one of the most actively researched energy sources in the world, and just one or two breakthroughs in hydrogen generation, storage, or transportation can significantly increase the demand for Ballard’s fuel cell solutions and its services.
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Foolish takeaway
The two discounted stocks offer two different recovery pathways and timelines. The crypto stock may experience a relatively fast recovery, but it may remain short term. In contrast, a bullish phase might be relatively long term for Ballard Power, especially if it’s triggered by a strong technical breakthrough when it comes to hydrogen as an energy source.
