Tension is brewing as the stock market awaits a U.S. Fed rate cut. The TSX Composite Index pulled back 2.5% in the first week of September over concerns of a recession in the United States. The U.S. jobs data was weaker than expected, with 142,000 jobs added in August against the expected 160,000. The Fed closely monitors U.S. jobs data to determine the interest rate. In early August, weak jobs data increased fears of recession and pulled down the market.
At times like these, beginner investors have an opportunity to buy fundamentally strong growth stocks at heavy discounts.
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Three TSX stocks to buy right now
Here are three TSX stocks you could consider buying to begin your stock market journey.
Shopify stock
Shopify (TSX: SHOP) stock has dipped 11% to around $91 amid the macro concerns, creating an opportunity to buy the dip. The dip has nothing to do with the company’s fundamentals. Shopify has been focused on turning profitable and even managed to report a net profit of US$171 million in a non-seasonal quarter (June 2024 quarter). It continues to grow its revenue by mid-single digits.
A recession or an economic slowdown could directly impact its holiday season sales as consumers would spend less. Nevertheless, Shopify’s asset-light model gives it sufficient liquidity to withstand a downturn. Moreover, its growing outreach will help it capitalize on e-commerce adoption in the 5G digital age, where you will have more means to shop online. At present, you can shop online using a mobile and laptop. But in the artificial intelligence (AI)-enabled world, you can shop using home appliances, cars, and AI assistants.
On the valuation front, Shopify stock is overvalued at 51 times forward price-to-earnings ratio. However, it has ample room for growth in the long term, driven by the growing digital presence.
Dye & Durham stock
Practice management software Dye & Durham’s (TSX: DND) stock price has slipped 5.7% to $13.25 on the macro news and slightly weaker earnings. The company’s Unity platform helps legal practices and banks conduct due diligence on property. It has partnered with National Bank, one of the Big Six Canadian banks, to provide a nationwide property settlement offering. DND will offer real-time property exchange tracking to enhance property settlement. This new offering will expand DND’s client base into the real-estate value chain, making its solutions stickier.
The company is operating at a 57% margin but is still reporting a net loss because of high finance costs on its $1 billion-plus debt and the failed acquisition of TM Group. However, the company has been reducing its finance costs gradually. The upcoming interest rate cuts and DND’s debt repayment could reduce the finance cost further and make the company profitable again.
The stock is a value buy at 2.28 times its price to book value per share ($5.83), as a reduction in debt will enhance the book value of equity.
Descartes Systems
Another software stock Descartes Systems (TSX: DSG) is a resilient stock that you can consider buying whenever it falls. The nature of its business of logistics services and supply chain management solutions makes it a defensive stock. While the company’s operations are affected by economic and geopolitical issues, its revenue continues to grow at an average rate of mid-teens. Its platform is sticky and has a wide consumer base spread across verticals. This software-as-a-service company has not only turned profitable but has also increased its profit margins to 21% from 15% in FY21.
The takeaway
All three stocks are buy-and-hold options for the long term. They can give you strong capital appreciation and double your investment in the next five years.
