Having saved up $5,000 from your working income, you are now considering investing it in stocks through your Tax-Free Savings Account (TFSA). The current market situation is offering a range of value stocks trading at hefty discounts you could consider buying in August.
Three stocks to buy in August
Famous value investor Peter Lynch had an investment philosophy of categorizing stocks depending on their growth pattern and investing in them accordingly. He noted six categories: stalwarts, slow growers, fast growers, cyclical, turnaround, and asset play. Here are three stocks that cover three of these categories. Together, they can give a good mix of growth in various scenarios across different sectors.
Slate Grocery REIT
The real estate market underwent a massive correction in the last two years as the central banks hiked interest rates to a decade-high. This trend pulled down the unit price of several REITs as the fair market value of their property portfolio fell. In this industry-wide decline, Slate Grocery REIT’s (TSX:SGR.UN) unit price has fallen more than 27% since April 2022, when the rate hike began.
The real estate investment trust (REIT) is now trading at 0.76 times its book value per share. The book value is the total value per unit after deducting assets from liabilities. The REIT trades at $12, 76% of its book value per unit. It is an asset play as investors have undervalued the stock.
Slate Grocery REIT has 72 retail store properties in the United States. The value of these properties would likely increase in the long term as the real estate market recovers. Moreover, the REIT has room to increase its rent as it charges lower rent than others in the market.
The unit price could see a recovery as the market conditions improve. Since it is a REIT, buying at the dip can give you the advantage of locking in a higher yield of 9.79%.
Hive stock
Hive Digital Technologies (TSXV:HIVE) is a fast-growing stock, which is currently range-bound because of market uncertainty. It derives its stock price value from its Bitcoin inventory it has mined over the years. Bitcoin prices are sensitive to the economic scenario. They tend to increase in a strong economy. Hence, when the fears of recession elevated towards the end of July on weak U.S. jobs data, Hive’s stock price has fallen almost 36% in two weeks.
This fast-growing stock can give you both short- and long-term returns. The stock sits comfortably at around $4 in the lower range and can go up to $6-$8 in the upper range over hopes of economic recovery. The short-term strategy is to buy the stock at $4 or lower and sell it at $5.5 or above, earning a 35-40% capital gain.
The long-term strategy is to keep buying Hive stock whenever it falls below $4. Since you are buying at the dip, the downside risk is mitigated. When the economy recovers, and Bitcoin’s price rises, you may see a sharp growth in the stock. The company is also expanding its revenue streams and is offering its data centres for high-performance computing. This segment is relatively small but is growing fast. It could help Hive generate stable cash flows in the long term.
Telus stock
Telus (TSX:T) is a slow-growth stock that may give generous dividends and reduce downside during a market downturn. The telecom operator’s stock price took a hit from the high interest rate that increased its leverage ratios beyond its targeted range. With a dividend payout ratio of 91%, way above its target range of 60-75%, the market has discounted the stock for the risk of a dividend slowdown.
Now that the Bank of Canada has resorted to interest rate cuts, these ratios should improve and provide relief to Telus’s stressed finances. Telus has also given up on the price competition with rival BCE and has started increasing prices. This move could see a recovery in profit margins.
While the stock will remain sensitive to interest rate decisions in the short term, they are a value buy for the long term.
