It’s important to understand that not all beaten-down stocks may experience a revival when the market turns bullish. That’s because the factors behind their slump may vary and are often rooted in aspects other than a weak market.
They might be associated with the stocks themselves or the sectors, but understanding what they are may help you choose the right beaten-down stocks during or before a bull market.
An energy stock
Energy stocks in Canada are experiencing a revival as the oil prices go up, but the same cannot be said for Parex Resources (TSX: PXT). There are a few differences to account for this lack of activity in this stock, starting with the geography it operates in (Colombia). The company also announced a production cut, which is just one of the factors that caused the stock to slump about 50% in five months.
However, there are a few things that make this beaten-down stock worth looking into. It’s a highly attractive valuation for one. The stock is trading at a price-to-earnings ratio of about 2.9, making it highly undervalued.
It’s also offering a generous (and, to an extent, dangerously high) yield of about 12.7%. If there is even a mild chance that the stock starts recovering in this energy bull market or the next holistic bull market, buying now can help you get the best of both worlds (dividends and recovery-fueled growth).
A tech stock
Telus International (TSX: TIXT), which has rebranded itself as Telus Digital, is a customer experience-focused tech company. It’s also leaning heavily towards artificial intelligence (AI), not just as a service segment but also to enhance some of its solutions. But this has yet to pay off, and the company is currently trading at an 88% discount on its initial price.
This brutally discounted tech stock might be ready to turn things around. Insiders have recently bought a lot of this stock, which shows internal confidence in the company’s future. It’s also poised to ride the AI hype train to recovery and growth. At its current price point, the company can offer exceptional returns to its investors simply by growing up to its initial public offering price.
A cannabis stock
Cannabis stocks like Curaleaf Holdings (TSX: CURA) require a specific bull market to gain positive momentum. They need a sector-wide bullish trend, ideally fueled by the U.S.’s marijuana legalization (on a federal level). The stock is currently trading at a 45% discount from its peak, and even a modestly positive outlook can cause it to surge upward.
As primarily a U.S.-based company, it’s even more well-positioned to surge in the wake of U.S. federal marijuana legalization than other Canadian stocks. It already has a presence in 17 U.S. states, and this footprint and brand recognition can help it capture a massive portion of the U.S. market in the right conditions.
Foolish takeaway
The three beaten-down stocks are worth keeping an eye on but not necessarily buying right away. All three require different circumstances and different bull markets to see a considerable amount of growth. Buying them just before these circumstances trigger a positive bullish phase might let you capture most of the growth these stocks have to offer on their recovery journey.
