Stock markets around the world have been on shaky ground ever since the U.S. started a war (or a special military operation) with Iran. The price of oil has skyrocketed, making investors worried about inflation, rising interest rates, and a slowing economy.
The S&P 500 is down 7.3% for the year. The TSX Composite Index is neutral for the year, despite a 7% decline in March. Yet, the indices hide the carnage that has been happening in software, asset managers, insurance, and professional services stocks. Many stocks with previously excellent return track records are down substantially this year.
There are certainly plenty of things to be worried about today. Yet, if contrarian investors are looking for deals, there are a few to be found. Warren Buffett has said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
If you like marked-down stocks, here two to consider buying right now.
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Descartes Systems: A top Canadian software stock
Descartes Systems Group (TSX: DSG) stock is down 31% in the past year. Fortunately, it has shown a reasonable bounce in March and is demonstrating decent momentum. Like other software stocks, it has been drawn down on fears surrounding artificial intelligence (AI).
Descartes offers a global logistic network that connects thousands of traders and supply chain participants. It runs a substantial piece of global trade on the network. It compliments this with a suite of useful software applications.
In times of volatility, Descartes tends to see rising demand. Businesses need solutions to navigate increasing trade complexity. Descartes helps provide this and more.
This stock has over $350 million of net cash and a strong cash generating profile. With software valuations declining, it is likely to be very opportunistic in its acquisition strategy. The uncertainty creates good opportunities for Descartes to deploy its merger-and-acquisition playbook for the long term.
Descartes stock is trading at its lowest valuation since the pandemic (when global trade all but halted for a period). Yet, the business continues to deliver low double digit earnings growth. It looks like an attractive buy for a long-term thinking investor.
WSP Global: A high-quality services stock
WSP Global (TSX: WSP) is another high-quality stock that has taken a hit lately. It is down 12.74% this year. Like Descartes, WSP has been hit by worries about AI-disruptions against professional service businesses.
WSP is one of the largest engineering, design, and advisory firms in the world. It has operations around the globe. Recent acquisitions make it a leader in power infrastructure (a major growth area) and a top engineering firm in the United States.
While AI is a concern to monitor, it may also be a tailwind for WSP. It can use AI to speed up menial tasks for employees, where they can use their expertise to deploy into higher value projects. Likewise, AI can be unlocked to provide broader recurring services for customers as well.
WSP has made major investments into technology in recent years. That is expected to help boost productivity and margins.
The AI fears could continue to be a headwind for the stock. However, if WSP can hit its targets for 17% earnings before interest, tax, depreciation, and amortization (EBITDA) growth, there could be upside for investors. This stock is trading at its cheapest valuation since 2020. It a high-quality business that you can pick up at a fair price today.
