The Canadian stock market has taken a pause in classic fall style. Typically, stocks take a break between September and October. They then start to roar higher into November and December.
This isn’t always the case, but it is often a predictable play investors can use to their advantage. Stocks pullback and you can add to names for an early winter rebound. If I had $2,000, here are two Canadian stocks that could be worth buying on recent dips.
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The ultimate Canadian space stock
MDA Space (TSX: MDA) is a volatile stock. In the past three years, it has experienced four drawdowns of negative-20% or worse. Yet, its stock is still up 234% in that period. It is the trajectory of this stock that you want to follow.
MDA provides high-tech satellites, specialized space infrastructure, and earth observation services. This is an exciting opportunity. Space is a rapidly growing market. Nations and companies are rapidly trying to take share of terrestrial space for communications and defence purposes.
MDA currently has a $4 billion backlog, but it has a business pipeline worth over $40 billion. MDA has enjoyed plus-30% compounded annual growth in revenues and adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) over the past five years.
This year, MDA made two major acquisitions that expand its expertise, capacity, and geographic footprint in the United States and Europe. It is positioned to provide a complete end-to-end mix of space and defence solutions.
Its stock is down 41% from peaks set earlier this year. Yet, MDA is not entirely cheap. It trades at about 18 times EBITDA and 30 times earnings. However, if you believe in the growth of the space economy for the coming 5 to 10 years, it is one of the cheapest stocks you will find.
With this Canadian stock, you need to have conviction that the space economy will maintain its rapid growth trajectory. Likewise, an investor needs to believe that MDA can execute on contracts and continue growing its backlog.
This stock is down, but there could be upside for the patient
Another Canadian stock to buy with $2,000 is WSP Global (TSX: WSP). It’s an ugly chart for WSP. Its stock is down 43% in the past year. However, for investors who don’t mind being contrarian this could be a great opportunity.
With over 83,000 professionals working at WSP, it is one of the largest engineering and advisory firms in the world. With global scale and expertise in every major discipline, it is positioned as the advisor of choice for any major project.
It is particularly known as a global leader in power and environmental solutions. This plays perfectly towards major global trends such as climate adaptation, infrastructure renewal, societal electrification, and data centre expansions.
This year, WSP is targeting revenue growth of 16% to 21.8% (with mid-single digit organic growth) and adjusted EBITDA growth of 21% to 24%. EBITDA margins continue to tick up towards its 20% target, which indicates its scaled advantage.
This stock has been pulled down on AI disruption fears. Likewise, it has accumulated a decent amount of debt from its aggressive acquisition strategy. With bond rates rising, its debt is something investors need to monitor.
At 14 times forward earnings, this Canadian stock looks very attractive on a price-to-growth basis. You may have to be patient given the current negative sentiment. However, it could pay off, especially if the AI-related threats already reflected in the stock’s valuation fail to materialize.
