Price fluctuations are common in the stock market, and several factors drive price volatility. However, downward market volatility can sometimes be a window of opportunity. Some companies have strong business fundamentals and visible growth potential, yet their stocks underperform.
For instance, Open Text (TSX:OTEX), ATS Corporation (TSX:ATS), and Obsidian Energy (TSX:OBE) are trading at absurd discounts, making their current share prices good entry points. You can take advantage of the temporary weakness before the stocks rebound and deliver outsized gains.
IM competitive advantage
Open Text is at the forefront of digital transformation. The $11.5 billion company is known for its integrated Information Management (IM) platform and cloud-native solutions offering. Like the previous three years, the business is again profitable in fiscal 2024.
In the 12 months ending June 30, 2024, total revenues increased 28.6% to US$5.8 billion compared to fiscal 2023 and are 65.1% higher than in fiscal 2022. Net income jumped 209% year-over-year to US$465.3 million, while free cash flow (FCF) rose 23.3% to US$808.4 million from a year ago.
As of this writing, at $43.66 per share, OTEX is down 20.4% year-to-date but pays a decent 3.4% dividend. Management expects the business and financial momentum to continue, and OTEX will focus on extending its IM competitive advantage in fiscal 2025.
Record Order Backlog
ATS is a steal at $36.80 per share (-35.6% year-to-date), although market analysts’ 12-month average price target is $57.1%, or a 57.1% potential upside. This $3.6 billion company operates in the Specialty Industrial Machinery industry, designing and building factory automation systems.
In Q1 fiscal 2025 (three months ending June 30, 2024), revenues and net income declined 7.9% and 26% to $694.3 million and $35.3 million, respectively, compared to Q1 fiscal 2024. However, the silver lining was the 18.4% year-over-year increase in Order Bookings to $817 million and the $1.9 billion Order Backlog at the quarter’s end.
According to Andrew Hider, CEO of ATS, the company’s largest Order Backlog in life sciences provides good revenue visibility throughout fiscal 2025. Management plans to expand ATS’ presence in regulated markets like beverage, food, and life sciences but will trim costs in the electric vehicle space due to low demand.
High-growth stock
Obsidian Energy underperforms at $9.26 per share despite the 7.2% year-to-date gain and 3.4%-plus one-year price return. This small-cap stock was ranked second in the 2022 TSX30 List, a flagship program for Canada’s top growth stocks. Its overall return in five years is 480.7%.
The $706.9 million Canadian oil and natural gas company explores and develops petroleum resources in Western Canada (Peace River, Cardium and Viking areas). In Q2 2024, net income climbed 101.6% versus Q2 2023 to $37.1 million, while cash flow from operating activities increased 16.1% year-over-year to $77.9 million.
Obsidian’s 35,773 barrels of oil equivalent per day production was its highest average quarterly production since 2016. Market analysts forecast an average 50.4% price increase to $14.50 in one year.
Bargain deals
Open Text, ATS Corporation, and Obsidian Energy are bargain deals in August, but they should be brief. The stocks are well-positioned to rebound after their most recent financial and operating results.
