Even though undervalued stocks are difficult to identify, they are easy to select from. In most cases, you usually don’t have to look beyond the company’s fundamental strengths and determine whether the current undervaluation makes them attractive enough to buy.
However, things may become a bit trickier when this undervaluation is driven by a price slump/discount or when you are trying to select the right discounted stocks.
That’s when you should (ideally) also look into the factors behind the decline/slump and how it may impact the stock’s long-term growth, recovery potential, or even its fundamentals. That said, there are three TSX stocks near their lows that are worth looking into.
An EV company
Even though many electric vehicle (EV) companies enjoyed tremendous growth (and some still do), Lion Electric (TSX: LEV) company and stock cannot be counted among them. This stock has been beaten down practically since its inception and is currently trading at a 92% discount to its initial public offering (IPO) price. There are several reasons, including weak financials.
The company had to lay off about a hundred employees earlier this year because of its weak earnings. That said, I would still consider this company because of the potential its business model promises.
Lion Electric focuses on mass transit, particularly school buses, which can be a robust niche market once local governments transform their fleets into green/electric alternatives. It’s an enormous and currently primarily untapped market in the U.S. and Canada.
A tech company
Despite its solid pedigree, Telus International (TSX: TIXT) has been in trouble virtually since the beginning. It enjoyed modest growth early on, but ever since hitting its peak in Oct. 2021, it has been in perpetual decline and is currently trading at an 83% decline from that peak. The company focuses on a specific tech niche, i.e., digital customer experience, and delves into artificial intelligence (AI).
Finances are not the core problem with this company. It is not healthy or growing at a reasonable pace, but we can’t call Telus International a financially weak company. Still, the stock has failed to gain traction, and because some institutional investors exited their Telus International positions, the reputation has taken a hit as well.
Still, its AI focus and connections with a telecom giant may allow the company to flourish in the future. Once it goes bullish, the discount will become an asset for its investors.
A lithium company
Sigma Lithium (TSXV: SGML) is simply one of the many victims of the major lithium price decline in the Canadian stock markets. The stock has fallen over 65% from its peak and about 52% just this year. One factor behind this particular lithium stock’s hard fall is its meteoric rise in the last few years.
The company’s revenues have also taken a serious hit, but many of its fundamental strengths are still relevant. Even though lithium’s demand has slackened, it’s unlikely to remain down for long.
A harder push towards solar power (that requires battery storage) and EVs may trigger the demand to rise again. Apart from having decent recovery potential, Sigma Lithium is also a good pick from an ESG (environmental, social, and governance) investing perspective.
Foolish takeaway
The three stocks are either at or near their lows and heavily discounted. The circumstances that may trigger their recovery are difficult to predict, and the timeline may be months, even years, in some cases. But when recovery does happen, there is a decent chance that it will be proportional to the slump, hopefully leading to amazing returns.
