Canadian equity markets have experienced heightened volatility in recent trading sessions amid escalating geopolitical tensions in the Middle East and renewed inflationary concerns stemming from rising crude oil prices. Despite the recent turbulence, the benchmark S&P/TSX Composite Index remains up approximately 13% year to date, supported by improving corporate earnings and strength across commodity markets.
Against this backdrop, the recent weakness in the following two companies appears particularly noteworthy. Both stocks have pulled back significantly from their recent highs, creating potentially attractive entry points for long-term investors seeking to capitalize on their underlying fundamentals and future growth prospects.
Source: Getty Images
Celestica
After delivering exceptional growth over the past three years, Celestica (TSX: CLS) has come under significant pressure in recent weeks. The stock has declined approximately 38% from its recent high, resulting in a notable compression in its valuation. It currently trades at forward price-to-sales and price-to-earnings multiples of approximately 1.3 and 20, respectively. These multiples appear increasingly attractive given the company’s robust growth trajectory and favourable long-term outlook.
Celestica is also well positioned to benefit from the rapid expansion of artificial intelligence (AI) infrastructure. As hyperscalers accelerate investments in AI-ready data centres to accommodate the growing adoption of AI among businesses, governments, and consumers, demand for Celestica’s data centre infrastructure and technology solutions should continue to strengthen. The company is capitalizing on this opportunity by investing in product innovation and expanding its production capabilities, which could further strengthen its competitive position.
Celestica’s strong operating momentum was evident in its recent second-quarter results, which prompted management to raise its full-year outlook. The updated guidance calls for revenue and adjusted earnings per share (EPS) growth of 65% and 87%, respectively, year over year. Management also expects growth to accelerate further in 2027, supported by robust customer demand and an expanding pipeline of new program wins.
Given Celestica’s strong financial momentum, significant exposure to the secular AI infrastructure opportunity, improving growth outlook, and more attractive valuation following the recent selloff, I believe the stock represents a compelling buying opportunity for long-term investors at these levels.
5N Plus
Another undervalued Canadian stock I am bullish on is 5N Plus (TSX: VNP), which has declined more than 50% from its June high. In addition to broader market weakness, investor sentiment has been weighed down by margin pressure stemming from higher input costs in the second quarter. However, the sharp pullback has significantly compressed the company’s valuation, with 5N Plus currently trading at next-12-month price-to-sales and price-to-earnings multiples of approximately 3 and 22.9, respectively. Given its long-term growth prospects, these valuation levels appear attractive.
Despite the near-term margin headwinds, 5N Plus continued to deliver strong top-line growth. Second-quarter revenue increased 28% year over year, driven by higher volumes across its Specialty Semiconductors and Performance Materials businesses. Gross profit also advanced 12%, although the adjusted gross profit margin declined by 430 basis points to 30.3% due to elevated metal and chemical input costs. Importantly, net income increased 29.6% to $18.7 million, while the company strengthened its balance sheet by reducing net debt to $23.7 million from $50.3 million at the beginning of the year.
Beyond its near-term performance, 5N Plus benefits from favourable structural trends across its key end markets. Growing demand for specialty semiconductor materials, coupled with the resilience of its Performance Materials segment, provides the company with multiple avenues for sustainable long-term growth. With deep expertise in manufacturing ultra-high-purity semiconductor materials, 5N Plus could capitalize on these secular opportunities.
The company also entered the third quarter with a substantial backlog of $420 million, equivalent to approximately 313 days of annualized revenue. Meanwhile, ongoing productivity initiatives and capacity expansion projects could improve operational efficiency, expand margins, and generate greater economies of scale as the business grows. Considering its strong revenue growth, improving balance sheet, exposure to attractive secular trends, and attractive valuation, 5N Plus offers an appealing opportunity for long-term investors.
