Stock market dips can often be great opportunities for patient, long-term investors. You get to pick up your favourite stocks while they trade at or below their average valuation range.
As long as there is nothing fundamentally or terminally wrong with a stock/business, an arbitrary or short-term decline in the valuation of a stock can be a great buying opportunity. Fortunately, there are several premium Canadian stocks that are trading at more attractive valuations today. Here are two quality stocks that would be worth adding right now.
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A top Canadian software stock
Descartes Systems Group (TSX: DSG) stock has declined 10.5%. The transport industry has taken a major hit from Trump’s global tariff war. While Descartes is not a transport stock, it does provide crucial software for the logistics and transport industries.
The good news is that Descartes has software that helps companies navigate the challenges imposed by tariffs and duties. Its software often helps replace cumbersome and disorganized paper forms. Once adopted, its software tends to be very sticky.
That is reflected in Descartes’s high recurring revenues, elevated margins, and strong free cash flow generation. It earns 22% earnings margins and +30% free cash flow margins. It has a very strong cash-rich balance sheet. This provides it ample firepower to invest in software companies that enhance the products/services it can provide. Descartes stock often trades at a market premium because its business has strong fundamentals.
Today, Descartes trades with an enterprise value-to-earnings before interest, tax, depreciation, and amortization ratio of 27. While that is elevated, it has come down closer to its long-term mean of 23.5. If this stock were to decline any further, it could be a very attractive time to buy.
A top real estate services company
Another premium stock to add on the dip is Colliers International Group (TSX: CIGI). Its stock is down 16% since the start of the year. While it has significantly underperformed, it looks attractive for a long-term hold.
Colliers has delivered excellent high teen returns over the past 20 years. It has built a commercial real estate services empire. It has a global brand synonymous with its commercial brokerage business. However, it has also expanded into property management, investment management, and engineering services.
Over 70% of its income comes from recurring business. The company has a great record of making smart acquisitions that expand its service breadth and geographic reach. It just announced the purchase of TrioVest, a major Canadian real estate investment manager. Colliers has a very high insider level of ownership. This makes management incentive for success very aligned with shareholders.
Today, Colliers stock trades at its 10-year average valuation range. However, it deserves a premium given the scale, size, and breadth of the services it provides today.
The market is likely concerned about its brokerage business. The transaction market is likely to have softened due to business uncertainty created by Trump’s tariffs. The reality is that assets need to transact at some point.
If you can look past the current uncertainty, this stock could really bounce as the market regulates out of the tariff uncertainty. Right now could be an opportune time to add this quality Canadian stock to your portfolio.
