As we near the mid-year, hopes of a market recovery are getting stronger. After 11 months of a 5% interest rate since July 2023, the market is hoping for a 25-basis point rate cut in June 2024. In the hopes of a rate cut, investors could see some positive momentum towards the end of May. Market experts are also optimistic about a bull run towards the end of 2024 after two years of a bear run. The high interest rate, slow economic growth, and industry-specific headwinds have delayed the secular growth trends of some fundamentally strong stocks. These stocks are just waiting to soar in the bull market.
Two stocks just waiting to soar in the bull market
The stocks I am talking about have been in a downtrend since 2022 or before and are trading near their multi-year lows.
Magna stock
I have been suggesting Magna International (TSX:MG) stock as a growth stock to buy the dip for over a year. I stick to my bullish outlook for the auto components maker as its long-term secular growth trend of electric and autonomous vehicles (EVs/AVs) remains intact.
The stock has slipped 41% since January 2022, beginning with the semiconductor supply shortage, then rising interest rates slowing automotive demand by making auto financing expensive. The chip supply shortage has eased. An interest rate cut and economic revival could drive EV demand.
If you look at Magna’s earnings, its 2023 sales surged 13% and adjusted earnings before interest and tax (EBIT) margin surged to 5.2% from 4.5% a year ago. The company even increased its dividend per share by 3.26% in 2024. These fundamentals show a recovery, which is not yet reflected in the stock price. Now is an opportune time to buy the stock while it trades near its four-year low at $66 and lock in a 3.88% dividend yield.
Once the market revives, Magna has the potential to cross the $100 mark riding the EV rally.
BCE stock
BCE (TSX:BCE) stock has been making headlines for its 40% slump, pulling the stock price to its 10-year low of below $45. Behind this dip are rising interest expenses since it took significant debt to fund the 5G infrastructure. After spending billions on the infrastructure, the telecom regulator asked BCE to give competitors access to this infrastructure at a discounted rate by May 2024. The telco has opposed the decision. I am optimistic that a settlement could be reached as discounted access dilutes the incentive of building 5G infrastructure.
The regulator is tightening regulations, and BCE is broadening its exposure to less regulated services like cloud and digital. BCE’s business restructuring will find a way to make money without tainting its +30-year history of paying regular dividends without any cuts.
BCE’s dividend payout ratio is above 100% of its free cash flow and will increase further in 2024 as restructuring reduces FCF. However, the telco can sustain these tough times and emerge as a strong player in the bull market when interest rates fall.
Investor takeaway
You may probably own some of these stocks at a higher price point. If you own them, continue holding them and consider adding more at the current price point to reduce your average cost. Your patience will pay off in the long term, and you will be glad you bought them today.
