The tried-and-tested formula of buy the dip and sell the rally might sound easy but is difficult to implement. If you buy the dip of a stock that is nearing the end of its business cycle or whose fundamentals are too weak to put it back on its feet, you are digging deeper into the pit. Thus, it is important for you to study the business, the growth drivers, and risks before considering buying at the dip.
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Three stocks to buy every time they dip
Only companies whose stocks have dipped because of investor panic or temporary macroeconomic conditions but whose secular growth is intact are worth buying at the dip.
Constellation Software stock
Constellation Software (TSX: CSU) is an evergreen growth stock you could consider buying at the dip. The stock has dipped 6% in March. The holding company of vertical-specific software companies grows by acquiring more companies that generate regular cash flows. These cash flows are reinvested to buy more companies. And with tech stocks falling, Constellation can buy companies at a discount.
Its revenue is diversified as it acquires companies from different verticals and mission-critical applications, mitigating sector-specific risk. Constellation stock falls during bear market momentum but jumps on market recovery as the acquisitions made during the bear momentum will increase its cash flows.
Descartes Systems
Descartes Systems (TSX: DSG) stock has dipped 18% since the tariff war began in February. The supply chain management and logistics solutions provider will see a temporary dip in demand amid uncertainty around trade policies. However, these tariffs will increase demand for its global trade intelligence and custom duty compliance solutions.
Descartes is in the business of smoothening the flow of goods, services, and information from one place to another. The demand for such smooth operations is felt the most amid trade hindrances.
Descartes’s stock could fall amid the trade war uncertainty but could rebound once there is clarity around tariffs, as pending trade is executed. The company has no debt and US$236 million in cash reserve as of December 31, 2024, which puts it at an advantage during the downturn.
Magna stock
Magna International (TSX: MG) stock has declined 58% in the last four years. It peaked in early 2021 when then-U.S. President Joe Biden announced a 50% electric vehicle (EV) mandate. And now, the new U.S. President Donald Trump has scrapped the EV mandate. The tariffs and import bans between countries could create an opportunity for Magna, which has production facilities in all major car markets.
The European Union has banned the import of Chinese EVs and China has banned the import of European luxury internal combustion engine vehicles. These companies could probably explore opportunities to assemble their cars where they are sold using Magna’s full car assembly facilities in Canada, America, and Europe.
Magna’s robust balance sheet has helped it sustain weak automotive demand and the bankruptcy of its client, Fisker. Magna is well-equipped to grab the opportunity when automotive demand revives.
Moreover, the company continues to distribute a quarterly dividend and increase it annually, most recently by 2%. The stock price decline has inflated the dividend yield to 5.4%, creating an opportunity to lock in a higher yield and a future recovery rally.
Investor takeaway
The above three stocks have lower debt, a strong balance sheet, and regular cash flows. Their share prices dipped because of conditions beyond their control. Constellation Software stock fell because of overall tech stock bearishness, Descartes Systems’ stock fell because of trade war uncertainty, and Magna fell because of weak automotive demand.
Each of them could recover when these external factors subside. Buying the dip of such fundamentally strong stocks can be rewarding.
