When it comes to the stock market, most retail investors think finding the best stocks on Bay Street is the most important thing to focus on.
And while that may be true in some respects, the key isn’t just about the stocks themselves. Before you even start looking, you need to approach investing with the right mindset.
That’s why I believe the most important part of investing is having discipline and patience. You need the discipline to buy high-quality businesses, which are often the ones that aren’t flashy or trending. Then you need the patience to hold them for years while they grow and compound your wealth.
Getting rich quick is not impossible, but it’s incredibly difficult, and it’s even more risky, and more often than not ends in disappointment.
That’s why the best investing strategy has always been long-term investing. Buy strong businesses, hold them through the ups and downs, and let time do the heavy lifting.
The key, though, is quality. A great business at a fair price will always outperform a mediocre one trading at a discount. But every so often, the market misprices a top-tier company, creating a rare opportunity for investors who are paying attention.
And right now, one of Bay Street’s biggest mistakes is how it’s currently valuing Cargojet (TSX: CJT), a high-quality, high-potential stock with long-term tailwinds that’s been unfairly punished by short-term headwinds.
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Why is Cargojet temporarily undervalued?
Over the past few months, Cargojet has been trading well off its highs, and while some of the decline can be attributed to short-term concerns about its operations, the broader environment has played a major role. With growing global trade tensions and tariff risks, cargo and logistics stocks have seen a significant decline.
Furthermore, with worries about a recession and slower consumer spending, stocks like Cargojet are directly impacted.
Since Cargojet specializes in overnight, time-sensitive shipping, the majority of its business and growth potential relies on strong e-commerce consumption. So, when consumer spending or e-commerce shopping temporarily declines, so does demand for Cargojet’s services.
Nevertheless, even in this tougher economic environment, Cargojet has continued to expand its business. In fact, it even beat earnings expectations in the first quarter, even if revenue growth came in slightly lighter than expected.
Furthermore, these uncertain economic environments tend to pass, and these opportunities to buy high-quality stocks don’t last forever. Therefore, while Cargojet is trading roughly 29% off its 52-week high, it’s one of the best stocks on Bay Street to buy now.
Why is Cargojet one of the best stocks on Bay Street to buy now?
Despite the current headwinds impacting Cargojet’s operations and expansion, the stock remains one of the best long-term investments to consider in Canada for several reasons.
Firstly, it holds a dominant position in the Canadian overnight air cargo market, supported by long-term contracts with major players such as Amazon and Canada Post. These deals provide recurring revenue and a layer of stability to its operations.
So, not only does it have long-term potential due to its dominance in a growing industry, but that growth is also supported by an e-commerce industry that will continue to grow and become more popular among consumers over the long run.
In fact, analysts estimate Cargojet will still grow revenue by 5.9% this year. Furthermore, according to analysts’ projections, Cargojet’s normalized earnings per share are expected to increase by 8.1% this year.
Therefore, with the stock trading at a forward price-to-earnings ratio of just 19.7 times, below its 5-year and 10-year averages of 27.2 and 27.8 times, respectively, it’s unquestionably undervalued.
That’s why it’s no surprise that of the six analysts covering Cargojet, five rate it a buy, with one analyst calling it a hold. Furthermore, its average analyst target price of $144.34 is a roughly 38% premium to where Cargojet is trading today.
So, if you’re looking for a stock that has potential both in the near term and over the long haul, then Cargojet is one of the best to buy now, while Bay Street continues to temporarily undervalue it.
