1 Canadian growth stock that could double your money on an economic recovery

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Written by Puja Tayal at The Motley Fool Canada

If you hear about a stock that’s thriving in an economic downturn, this isn’t the time to buy it. The stock market rewards those who invest in the future, not the present.

For example, food and utility stocks are defensive stocks, and gold is considered a safe haven. These stocks tend to outperform in a recession but underperform in economic growth. Defensive stocks should make up a small portion of your portfolio. The bulk of your portfolio should consist of value, growth, and dividend stocks. The current market downturn is a time to buy growth stocks that can thrive during the economic recovery.

The only Canadian stock to buy in a market downturn

The stock market is not too difficult to predict. It is what you think and plan. Look at your household budget and talk to your family. Ask them what they would buy once inflation eases and things get back on track. You can find your growth supply on your dining table.

Economy is what the average consumer uses and how much they use. I have actual examples of this. During the lockdown, many people postponed their travel plans and many missed going to the office and the theater. But as the lockdown eased, the shares of market leaders in those sectors rose. When lockdowns sparked panic, nobody knew what to buy or how to adapt. But those who had already invested in online services coined money.

Value is in stocks that no one is investing in now, but could be investing in for the future. For example, I’m planning to buy an electric vehicle (EV) in three years’ time because I’ve put off my purchase due to inflation and high electricity prices. Many consumers will purchase items at their discretion, and businesses will revitalize their supply chain to reduce dependency on one supplier. I’ve identified a stock trade near its 52-week low that could double your money if an economic recovery begins.

Magna International warehouse

Magna International (TSX:MG)(NYSE:MGA) is not an automobile manufacturer but is a component supplier and third-party automobile manufacturer. The company is the third largest in its industry and has created a structure to make the most of the demand for electric vehicles. The company has partnered with 24 of the top 25 EV manufacturers and builds EV manufacturing facilities for customers. At the moment, Tesla is a leader in the EV space. But several tech and auto companies have new EV models lined up for the second half and next year. This space is becoming crowded as major countries commit to replacing internal combustion engine vehicles with electric vehicles.

The barriers to EV adoption are dissolving. Governments are investing in electric charging stations. Companies are developing ways to use renewable energy in these stations. Another concern is the availability of lithium for EV batteries. However, work continues to find an environmentally friendly way to mine lithium.

Magna will come into play when EV supply increases because the demand is already there. The EV revolution slowed due to supply shortages. When these restrictions ease, Magna will fire all cylinders and fulfill those stacking orders.

It’s been a headwind year for Magna, with semiconductor supply shortages, the Russia-Ukraine war, the Chinese lockdown and inflation. Investors forgot about this stock, which was once their favorite when Joe Biden became US President and passed green energy legislation to support electric vehicles. Magna stock has fallen 46% to pre-pandemic levels since its peak in June 2021. The company has $2 billion in cash on hand and no upcoming significant debt maturity. This gives it the flexibility to pay dividends even if its earnings are falling. This is the time to buy into future growth.

A touch of dividend

Magna stock has a high trading volume of over a million shares. This means that you can easily buy and sell this stock. The dip has increased its dividend yield to 3.16%. Investors don’t see Magna as a dividend stock, but the company has been paying a regular quarterly dividend since 1993 and has been growing since 2010. This stock offers a good mix of dividends, value, and growth.

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery was first published on The Motley Fool Canada.

Hear this before you consider Magna International.

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Stupid contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Magna International and Tesla.

2022

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