Is the 52-week low a good buying point? Going by the rule of buying the dip and selling the rally, a 52-week low might seem like an attractive buying point. However, not all stocks are a buy. Some stocks fall because of temporary headwinds and some due to structural issues with the company. Either the company has lost its competitive advantage, the operational expense or debt has made it unattractive, or the company has matured and has limited scope for growth.
Two bargain stocks dip to their 52-week low
Here are two stocks trading closer to their 52-week low due to macro or industry weakness. Their fundamentals are strong, and they have a good profit and balance sheet, giving them financial flexibility. Buying such stocks at their 52-week low could help you secure your seat in a steep recovery rally and give double-digit returns. It is an opportunistic buy to make quick bucks.
Don’t just look at the stock and rush to buy it. Know what to expect and the events that could trigger a rally. Understanding the mechanics driving the charts can help you invest confidently.
Hive stock is a bargain below $4
You know it as a highly volatile small-cap stock that mines Bitcoin. Hive Digital Technologies (TSXV:HIVE) stock price has dipped 16% in a month and 40% year to date. While this blockchain technologies stock has not reached its 52-week low of $3, it is heading in that direction as the overall economy is showing signs of weakness ahead of the June interest rate decision.
While the market and Bitcoin price charts are unpredictable, they are positively correlated to investor confidence underpinned by the economy’s strength. Bitcoin prices have been falling in anticipation of the inflation data, which will be released by the end of the month. This data will determine the course of interest rate decisions by the Bank of Canada.
The central bank may go ahead with the rate cut if inflation eases. That will boost investor confidence and drive the Bitcoin price and Hive’s stock price. This volatility in interest rates and inflation will continue for another 12 to 18 months till the rates normalize. Now that you know how Hive stock reacts to this set of events, you can keep buying throughout its dip below $4 per share. Keep holding it until the rate announcement.
Even if there is no change in the interest rate, continue to hold the stock as the Bank of Canada will cut the interest rate at some point. A 5% rate is not sustainable and stressing the economy. Positive momentum will come, and Hive stock could jump to over $6 to $7, depending on how strong the optimism is. That could give you an 80-100% return.
Telus a 7% yield bargain
If a small-cap is too risky and giving you cold feet, a large-cap stock like Telus Corporation (TSX: T) is trading closer to its 52-week low. It is a dividend stock, and the dip has increased its yield to over 6.7%. The management expects to grow its dividend by 7% this year. However, its dividend payout ratio (91%) has gone above its target range of 60 to 75%, suggesting a cautious approach to future dividend growth. The telco’s stock price is falling due to interest rate uncertainty as it faces higher interest expenses on the debt it took out to develop the 5G infrastructure.
The high interest rate topped with regulatory uncertainty has pulled down all telco stocks. The telecom regulator wants Telus to share its infrastructure with competitors at discounted rates. Such regulatory intervention tends to change the company’s plans and forecasts.
The stock could continue to fall till this uncertainty is settled. However, Telus has the financial stability to sustain its current dividend per share of $1.50. Buying the dip can help you lock in a 6.7% yield for the long term and enjoy a recovery as interest rate cuts ease the debt pressure.
