The Bank of Canada marked its first rate cut on June 5, 2024; as of this writing, eight of 11 primary sectors are in positive territory. Some market observers say a rate cut isn’t the only catalyst for a bull run, although many believe otherwise. Still, TSX investors are preparing for it.
Magna International (TSX: MG), Lightspeed Commerce (TSX: LSPD), and Pollard Banknote Limited (TSX: PBL) are beaten-down stocks that could take off in the new bull market. The three stocks could launch a comeback and take off in the new bull market because of the rate-cutting cycle.
Focus on growth and margin expansion
Magna International has been on a downtrend since the end of the first quarter (Q1) of 2024. The $16.75 billion company is one of the world’s largest auto parts manufacturers and suppliers. The stock is losing 24.1% year to date ($58.32 per share), but the 4.45% dividend yield compensates for the underperformance.
Its chief executive officer (CEO), Swamy Kotagiri, is confident about 2024 despite the challenges impacting growth and earnings. The company’s net income in 2023 climbed 51.2% to US$1.21 billion compared to 2022. In Q1 2024, sales increased 2.7% year over year to US$10.9 billion, while net income dropped 2,222.2% to US$9 million versus Q1 2023.
Magna’s ongoing concern is adapting to a rapidly changing automotive industry. According to Kotagiri, the company’s go-forward strategy focuses on growth and margin expansion. He believes that Magna will generate sustainable value in the long run as the industry transforms. The stock has always paid a quarterly cash dividend since 2010.
Built to scale
Lightspeed Commerce trades at a deep discount or less than $20. At $18.80 per share, current investors are down 32.42% year to date. This $2.88 billion company is a point-of-sale and e-commerce software provider. The tech stock plunged three years ago because of a short-seller attack.
Today, Lightspeed is picking up the pieces. In fiscal 2024 (12 months ended March 31, 2024), net loss dwindled 552.6% to US$163.9 million compared to fiscal 2023. Notably, revenue climbed 19.7% year over year to US$909.3 million. Most revenue is recurring or reoccurring and should grow per customer over time.
Management said Lightspeed’s platform is built to scale with its customers, particularly sophisticated small- and medium-sized businesses (SMBs). The platform allows these SMBs to leverage the technology they need to run and grow their businesses.
Profitable industry
Pollard Banknote’s overall return in 2023 was 40.7%, but the stock is underperforming thus far in 2024. At $28.31 per share, the year-to-date loss is 11.43%. The $765.9 million company offers lottery and charitable gaming products and solutions in the United States, Canada, and other international markets.
In Q1 2024, sales increased by only 0.5% to $125.7 million compared to Q1 2023, while net income rose 30.4% year over year to $6.9 million. Pollard’s co-CEO, John Pollard, expects the repricing of the majority of its contracts to have a growing positive impact on the company’s financial results through year-end 2024 and into 2025.
Tailwind for stocks
A rate cut or two would be a tailwind for TSX stocks. However, Governor Tiff Macklem said the central bank is monitoring wage growth. A strong job market could pause or stall rate cuts.
