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There’s never a one-size-fits-all trick that you can use to achieve your financial goals as a stock market investor. You can explore several strategies to generate the kind of returns you have in mind. As long as you manage to keep a well-balanced portfolio and a long investment horizon without taking unnecessary risks, any number or combination of strategies can work well for you.
Plenty of investors use the buying-the-dip strategy. This tried-and-tested formula involves investing in the stock market when prices are low, selling when prices are high, and profiting from the trade. When you read this, the strategy sounds very simple. However, it’s much easier said than done.
If you invest in the dip of a stock nearing the end of its business cycle or it simply doesn’t have what it takes to get back on its feet, you risk losing that money. Studying the business, growth drivers, and risks is essential to “buy the dip” with a higher chance of success. Today, I’ll discuss a trio of stocks I’d buy on the dip every time.
Magna International
Magna International (TSX:MG) is a $12.84 billion market capitalization company headquartered in Aurora that manufactures parts for automotive companies. The automotive industry is undergoing plenty of changes amid changing consumer preferences and rapid advancements. The company’s recent expansion into the Chinese automotive market, which is the largest worldwide right now, can be the key to significant long-term success.
As of this writing, MG stock trades for $44.71 per share, down 36% from its 52-week high. Such a massive downturn should be alarming, but the auto parts manufacturer seems to have what it takes to power through this difficult period. The market is changing quickly, and this undervalued stock is in a position to leverage that and deliver superior returns to investors in the long run.
Descartes Systems
Descartes Systems Group (TSX:DGS) is a $12.08 billion market-cap software company easing communication within the shipping industry. The rise in global trade tensions due to tariff wars kicked off by the U.S. has caused a dip across the board. Anything affecting trade will affect DSG stock, a company streamlining the transit of goods, services, information, and people.
However, the trade tensions might unlock a new opportunity for the company. A shift in the global supply chain will see companies seek alternative trade partners. The demand for its solutions can only skyrocket, fueling the company’s recovery and growth beyond. As of this writing, DSG stock trades for $141.27 per share. Down by over 20% from its 52-week high, it might be the perfect stock to buy on the dip to leverage the recovery and future growth.
Constellation Software
Constellation Software (TSX:CSU) is not your typical tech stock. The $95.61 billion market-cap company is in the business of acquiring, managing, and building vertical-specific businesses in private and public sectors across several industries. I consider it an evergreen growth stock due to its solid business model. Rather than taking unnecessary risks, the company invests in already successful businesses and makes them even better under its banner.
The companies it acquires generate regular cash flows, and CSU stock reinvests that cash to buy more companies that contribute further to its business model. Tech stocks are falling, and it has the opportunity to invest and diversify even more. As of this writing, CSU stock is down by almost 10% from its 52-week high and well-positioned to buy on the dip.
Foolish takeaway
The real “trick” to success with this strategy is identifying companies with solid balance sheets, regular cash flows, lower debt expenses, and favourable long-term outlooks. While it isn’t a risk-free approach, even with a well-informed allocation of investment capital, doing your homework minimizes the risk to you.
The trio of TSX stocks above have everything that can make them solid investments to consider for the long run because the underlying companies have it in them to recover from the downturn.
