Who doesn’t love discounts? However, the trick with a discount sale is that you need to scrutinize the product for any defects. If you have an eye for detail, you could get valuable products at a bargain. The same logic applies to the stock market. But this scrutiny is of the company’s fundamental strengths and future growth prospects.
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How to identify a value stock in a discounted market
Most investors make the mistake of judging a stock on its past earnings. The past earnings only give you an idea of the basic strength of the stock. For instance:
- Does the company have adequate cash flow to invest in future products?
- Are there any debt obligations that could diminish the impact of strong revenue growth?
- Does the company have stable cash flow and liquidity to survive the short-term headwinds and tap the demand recovery?
These earnings tell you where the company stands and the support the stock could see on the downside.
The next step is to look at the future growth prospects where the stock could see a recovery. When the storm subsides and demand revives, can the company cater to that demand and ride the recovery rally?
Two stocks to buy at a discount in May
Nvidia
Nvidia (NASDAQ:NVDA) stock has slipped 34% since January 23, when Trump tariffs were first announced. The stock fell as the Nasdaq crashed over fears of a repeat of the U.S.-China trade war, but this time, a more aggressive trade war. In the 2018 trade war, Nvidia was a casualty as its data centre graphics processing units (GPUs) were banned from being exported to one of its largest clients, China. The stock fell more than 50% in the 2018 trade war as its revenue took a hit.
The recent dip in Nvidia’s stock is an opportune time to buy at a discount. The company’s base is strong, with its net income margin at its all-time high of 57% and free cash flow at a record $60.7 billion. The cash is raining down for Nvidia, with expenses barely 12.6% of its revenue.
While the generative artificial intelligence (AI) cycle has cooled, it is just the beginning of the AI revolution. The next generation AI will have smart output, which will require scaling at the inference level instead of the training level. Nvidia’s next-generation Blackwell GPU addresses this challenge.
Nvidia’s major risk is any company beating its GPUs in performance. So far, it has no competition.
The company’s focus on shaping the future of technology makes it a buy at the dip. The stock could once again rally when the next technological upgrade comes.
Fiera Capital
Asset management company Fiera Capital’s (TSX:FSZ) stock price has slipped 30% year-to-date as the global equity markets were hit by a downturn.
The company had $167.1 billion in assets under management as of December 31, 2024. The share price is affected by the performance of the assets that are invested in equities, fixed income, and private markets across Canada, the United States, Europe, and Asia. A 63% exposure to Canadian securities pulled Fiera’s stock price down 30% on Trump tariff uncertainty.
Despite the decline in performance fees, its management fee continued to grow as people kept investing. The company funds most of its dividends from the stable management fee. In 2024, it paid 79% of its free cash flow as dividends, hinting that the company has the financial flexibility to keep paying dividends.
Buying the dip can help you lock in a 13.9% dividend yield, and staying invested can help you catch up on a stock price rally once the market recovers.
