Buying the dip and selling the rally is a proven strategy to make money in the stock market. However, we often end up buying the wrong dip. The shares of a company fall for many reasons. Sometimes it is the short-term headwinds and sometimes macro-economic headwinds or the overall bearishness in the market.
At times like these, you can find some ridiculously cheap stocks that have the potential to withstand these headwinds and return to growth when the sun shines after the storm. If valuation ratios are something that you can’t understand and relate to, look at the business and see if you can see the business sustain in the future to identify the right cheap stock.
Two ridiculously cheap stocks to buy in 2025
This time we will look at some businesses with secular growth. They have a bright future, but the near-term industry and macro headwinds have pulled the stock price down. If you are willing to hold the stock for five years, they are available at an unbelievable discount.
BCE stock
BCE (TSX:BCE) stock price has more than halved in almost three years. Behind this fall is mounting debt on its balance sheet and a decline in profit. Now the profit decline was a cost the management was willing to bear as it entered into a price war with Telus to poach Shaw Communications customers.
Moreover, BCE has been expanding its 5G infrastructure aggressively for which it took out billions of dollars in loans. As the loan money was spent on building income-generating infrastructure, debt repayment is not an issue. However, the interest rate hike in 2022 made the loan costly and the 2023 price war further slimmed the profits. None of these events affect BCE’s ability to earn revenue and pay debt.
BCE is also undergoing restructuring, selling low-margin businesses and acquiring high-margin businesses. These decisions have made investors apprehensive as the company’s free cash flow and net profit declined significantly. Many analysts downgraded BCE stock and called for a 50% dividend cut to address its 100%-plus dividend payout ratio. The analysts state that free cash flow is not the problem, the high dividend is. The management’s priority is to reduce debt and cut costs.
The company’s stock is trading at 11.9 times its earnings per share. The next two years could be difficult as the turnaround shapes up. However, BCE’s profits could revive as its high-margin business starts generating more cash flow, and interest rate cuts reduce the interest burden. Until then, we may not rule out the possibility of a dividend cut.
A surge in net profit could drive the stock up double-digits and double your money throughout the course of profit recovery.
Advanced Micro Devices
Apart from BCE, another stock trending downward is Advanced Micro Devices (NASDAQ:AMD). AMD is popular for its personal computer (PC) data centre chips and graphics processing units (GPUs). The fourth quarter is seasonally strong for AMD as Black Friday and Cyber Monday sales drive revenue for laptops, PCs, and game consoles. However, the 2024 holiday season saw AMD stock drop 28.7%, compared to the 2023 holiday season’s 50% rally.
HSBC analysts downgraded AMD citing a delay in the launch of a competitive AI rack server solution until late 2025 or early 2026. It even reduced AMD’s AI GPU revenue forecast from US$12.3 billion to US$8.1 billion. Remember, analyst downgrades and upgrades are based on short-term developments. If you are investing for the long term, these downgrades present an opportunity to buy the dip.
A PC replacement cycle in 2025 could drive AMD’s PC revenue. Also, AMD’s strategy is not to compete with Nvidia on performance. Instead, AMD looks to provide a cost-effective and reasonably high-performance solution that comes close to matching the performance of Nvidia’s GPUs. There is a wide market for such chip solutions. And let us not forget that AMD is the only company which can compete with Nvidia in discrete GPUs.
If you look at a five-year horizon, it is easy to envision both Nvidia and AMD AI solutions powering most of the world’s data centres. And to tap that growth, you need to invest today.
