The TSX stock market is at a point where it could see a reversal of the last two-year trend of rising interest rates and slowing economic growth. While the U.S. Fed has delayed the interest rate cut to the later months of 2024, the Bank of Canada initiated the rate cut, setting the tone for recovery. The stock market has not yet responded to this trend as inflation figures and the United States interest rates keep the macro environment uncertain.
Three TSX stocks trading at absurd discounts
Here are some TSX stocks trading at absurd discounts and waiting for the economic recovery to unleash the rally.
Magna stock
Magna International (TSX:MG) stock has been on a downtrend since 2021 and has fallen to a four-year low. Behind the prolonged decline is the pullback in the electric vehicle (EV) momentum after the 2021 semiconductor shortage eased in 2022. People have postponed their car purchases amid high interest rates and inflation. Canadians are struggling to keep up with grocery bills, and Europeans are with energy bills. Both have surged absurdly, shifting all the income to these expenses.
The EV momentum might have stopped amid a weak macro environment, but it is a secular trend that is here to stay. Once this cyclical downturn subsides and EV sales pick up, Magna could see a surge in order volumes. The company is prepared for this trend with additional capacity and decent liquidity to keep operations running till that inflection point.
Magna’s outlook might not seem strong as it keeps changing the guidance every quarter based on recent developments. However, constant revisions show the level of volatility in the automotive space. The automotive supply chain is operating in a flexible mode since it is difficult to forecast when the EV inflection point will come. Magna’s stock will surge significantly during the inflection point. Buying this stock at its low could give you better returns if you wait.
Telus stock
While Magna is still trading above its pandemic lows, Telus (TSX:T) stock has broken that record. It is trading near $20 while its pandemic low was near $21. The telco has fallen prey to the new pilot program of giving competitors access to its network infrastructure. A shared infrastructure is not a new concept. The network provider thrives even after sharing a portion of the proceeds.
While all telcos are burdened with high leverage and regulatory burdens, Telus has sufficient operating cash flow to thrive. Its dividend yield remains high at nearly 7.5% per annum. The company can sustain this yield and even grow its dividend by 7% per annum, making it a stock to buy till the telecom market revives.
Dye & Durham stock
Dye & Durham (TSX:DND) has been trading in accordance with the economic scenario. It bottomed out in October 2023, recovered till April 2024 and then fell between May and June. What is the connection between the legal practice management solutions provider and the economy? It has high exposure to real estate transactions.
The uptake of its Unity software depends on the volume of real estate transactions, which have been slow after the interest rate hike began in 2022. To add to this, the company also suffered from two failed acquisitions of Link and TM Group, which significantly increased its financing cost to $131.8 million (from $42 million in fiscal 2022 ended June 2022).
Dye & Durham has paused its acquisition spree and is focused on reducing its debt and growing organically. While the company is diversifying its client base, it will continue to be influenced by real estate performance in the short term. A recovery in this sector could drive DND’s stock price by more than 50% and bring it back to $18-$20 from around $12 at present.
