The ongoing drawdown in the equity markets can be tied to a number of factors, including the possibility of a U.S. recession, the Bank of Japan’s interest rate hike, geopolitical tensions, and more. However, investors should view every market pullback as a buying opportunity to benefit from outsized gains when market sentiment improves.
Keeping this in mind, here are two top value stocks I’d happily scoop up in August 2024.
Celestica stock
Valued at $7.6 billion by market cap, Celestica (TSX: CLS) designs supply chain solutions for enterprises. Its two primary business segments are Advanced Technology Solutions and Connectivity & Cloud Solutions. Celestica offers a range of product manufacturing and supply chain services, including component sourcing, systems integration, order fulfillment, logistics, and more.
In the second quarter (Q2) of 2024, Celestica reported revenue of US$2.39 billion, an increase of 23% year over year, while its adjusted operating margin rose by 80 basis points to 6.3%. Higher sales and widening profit margins have allowed it to increase adjusted earnings from US$0.55 per share to US$0.91 per share in the last 12 months.
Celestica reported an operating cash flow of US$123 million and a free cash flow of US$63 million in Q2, which means it spent $60 million in capital expenditures. With US$434 million in cash and US$750 million in debt, Celestica is well capitalized and can easily meet its interest requirements, given its free cash flow.
The TSX tech stock is priced at 14 times forward earnings which is really cheap, given its earnings are forecast to expand by 25% annually in the next five years. Bay Street remains bullish on CLS stock and expects it to gain 20% in the next 12 months.
CAE stock
Valued at $7.35 billion by market cap, CAE (TSX: CAE) provides simulation training and critical operations support solutions globally. It operates through two segments:
- Civil Aviation: It offers training solutions for flight, cabin, maintenance, and ground personnel in commercial, business, and helicopter aviation.
- Defense and Security: It operates as a training and simulation provider that enables force readiness and security for defense roles.
With more than 240 sites and training locations in 40 countries, CAE is an industry leader in providing flight and mission simulators and training programs.
The rise in travel demand following the COVID-19 pandemic has allowed CAE’s civil aviation business to thrive, as it posted strong growth and record profitability in fiscal 2024 (ended in March).
The company demonstrated how it could rapidly and effectively scale its training and flight operations solutions to meet customer demand. Its market share in commercial aviation is quite attractive through organic network expansion and outsourcing agreements with major airlines.
CAE deployed new simulators in Business Aviation to meet growing customer demand to serve new geographies. Moreover, it leverages strong airline relationships and software solutions in its Flight Operation Solutions segment, further augmenting its addressable markets.
Priced at 19.4 times forward earnings, CAE stock has significant upside potential, given that adjusted earnings are forecast to expand by over 21% annually in the next five years.
Analysts expect CAE stock to surge close to 30% in the next 12 months.
