I’m sure somewhere along the lines you’ve heard the phrase “Be fearful when others are greedy and greedy when others are fearful.” A famous quote by Warren Buffett, it is a single sentence summation of how to make money in the stock market.
Typically where beginning investors go wrong is they tend to focus on the stocks that are going up, not down.
Sure, over the long run you need to be picking stocks that are going to increase in price and pay healthy dividends.
But the error is often made on a short-term level, and beginner investors are often buying into hot stocks assuming they will continue to rise, and ignoring struggling stocks that will inevitably rebound.
What sounds better, that you just bought into a stock that has gone up over 100% in the last year, or just bought a stock that has lost 50% of its value over the same time period?
Before you ever start making money investing, you have to start thinking that the latter part of that sentence is the more optimal situation. As such, I’m going to present you with three stocks I feel have faced significant and unwarranted market turmoil over the last while, and have the potential to give investors a hefty payday once they rebound.
Three stocks that have faced market overreactions and are poised to rebound.
Canada Goose (GOOS.TO)
**Daniel is long GOOS.TO
Canada Goose designs, manufacturers, and distributes high end outerwear for adults and children. The company has recently added Baffin, a footwear company, to its portfolio.
In Canada, Canada Goose is a fairly well known company. The brand is respected at the highest level, and it seems that Canadians who can afford it have no issues dishing out over $1000 for a parka.
The company has not missed analyst earnings or sales projections in a single quarter since its 2017 IPO, and exponential growth has rewarded shareholders immensely. The company not only beats expectations, it often blows them out of the water typically in the form of double digit beats on both top and bottom lines.
However, the company and its stock took an absolute nosedive in late May. Canada Goose beat on both top and bottom lines yet again, but the issue was simply the company’s guidances. As analysts expected 30% growth, Canada Goose tempered expectations and said 20% growth was more realistic.
As such, the price of the stock fell. The key to this however, and the likelihood of profit to come from an investment in GOOS, is how much it fell. GOOS lost over 35% of its value post Q4 earnings. In my opinion, a significant overreaction.
So what are we presented with now? A stock that by all intents and purposes is dirt cheap. Trading at just over 22 times forward earnings, this price dip as a stock owner didn’t disappoint me. In fact, I was elated. I simply bought more, and have already earned over 10% on the initial recovery of the stock.
China- U.S. trade wars will inevitably settle, and I am really excited at the growth prospects this company has internationally. If you’re looking for a high potential growth stock in Canada, you should look no further.
Another stock that is taking a beating, Encana (TSX:ECA) is down over 30% in the last 30 days.
A high-profile natural gas producer in Canada, poor natural gas prices have caused the stock to take a beating. Over the past year the company has seen a 60% decline in its share price.
You’d think a company in such turmoil would be clawing back expenditures and waiting for the commodity to increase. However, Encana just recently announced its plan to buy back over $200 million in shares next month.
The company is trading at a price to earnings of 13.01, below both the industry and sector averages. With a price to book under one and a 2 year PEG of only 0.27, it is fairly obvious this stock is trading at a very deep discount.
The company has been unsteady in terms of revenue, missing the mark 3 out of the last 4 quarters, but they have impressed when it comes to earnings. Encana has exceeded earnings expectations in all of the last 5 quarters.
With a one year target estimate of nearly $14, Encana has more than 100% upside according to analysts. Natural gas prices have caused extensive fears, so now is the exact time investors need to get greedy. With an 14 day RSI of 32, Encana is bordering on oversold territory.
Whitecap Resources (WCP.TO)
Before I speak about Whitecap (TSX:WCP), it is important that you understand the volatility that lies within the oil and gas industry right now, especially with smaller companies.
The oil and gas sector has faced an absolute beating over the last few years, and it has left most companies with ridiculously cheap valuations. One of the companies I believe could prosper the most from a resurgence in oil is Whitecap.
Whitecap is now trading at a forward price to earnings of only 8.77 and an astonishingly low price to book of only 0.54. With a 2 year PEG of only 0.19, there is almost no growth priced into this small sized oil and gas company.
The company pays an alarmingly high dividend yield of 7.20%, one that would probably make income investors run for the hills in fear of dividend cuts. I had my fears as well, but the company recently raised its dividend by over 5.5%.
Analysts have a 1 year price target for the company at $8.56, which again signals over 100% upside from its current price of $4.125. There will come a time when Canadian oil companies are once again attractive to investors.
If you’re willing to invest and ride out the inevitable roller coaster, I think Whitecap provides the highest potential out there.
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