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Beginners: 2 Extremely Oversold Stocks Due for a Pop

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falling red arrow and lifting
falling red arrow and lifting

Written by Joey Frenette at The Motley Fool Canada

It’s a tough time to be a beginner investor, with the latest volatility storm sinking the broader TSX Index. Undoubtedly, there was some relief on Tuesday, as markets looked to form some sort of bottom. With so many bearish pundits doubting the sustainability of the current bounce, though, it seems like a better idea to stick on the sidelines.

Undoubtedly, by doing so, one will absorb the full impact of high inflation. Further, one also runs the risk of having to buy back at higher prices if this rally is, in fact, not due to implode like the previous one that ran out of steam heading into April.

The truth is, nobody knows where this market is headed next. The best that a beginner investor can do is to act on value as it arises. If there’s a stock with a wide margin of safety flying by your radar, don’t feel obliged to wait. Indeed, when others are fearful, it’s a good time to be a buyer of undervalued stocks.

With many already expecting a rate-induced recession, it’s arguable that the risk/reward is the best it’s been in a long time. The U.S. Federal Reserve acknowledged that a so-called soft landing might be difficult to achieve. Though the risk of recession is high, I think there’s plenty of upside if a severe downturn never materializes.

A soft landing is something that central banks are shooting for, but whether they get it is another question entirely. Regardless, there are enticing value stocks that seem to be oversold beyond proportion right here.

Restaurant Brands International (TSX:QSR)(NYSE:QSR) and Bank of Montreal (TSX:BMO)(NYSE:BMO) are two beaten-down dividend stocks that beginner investors may wish to give the benefit of the doubt. Both stocks sport handsome dividend yields of at least 4% at writing.

Restaurant Brands International

Restaurant Brands was already oversold and undervalued before the TSX Index’s May slip. The company behind Tim Hortons, Burger King, and Popeyes Louisiana Kitchen has been down and out for many months. As one of the worst-performing fast-food stocks, I think there’s a lot to gain by going against the grain here. The dividend yield has swollen to 4.2%, one of the highest in the quick-serve space. Down around 36% from all-time highs, QSR stock is a perennial underperformer, but if it can get things right, the upside could be tremendous.

Billionaire investor Bill Ackman is hanging onto his QSR shares, despite many years of meagre returns. As the economy tips into a recession, fast-food firms like QSR could get a bit of a jolt. Though there is baggage weighing down the firm, it’s tough to match the risk/reward at current levels.

Bank of Montreal

Bank of Montreal stock fell around 15% from peak to trough alongside the broader market as recession fears surged. While the big banks tend to get busted up when the economy falls into a sustained downturn, I think that such fears are overblown with BMO. The big bank has a lot going for it, with the acquisition of Bank of the West and more than its fair share of exposure to the booming oil and gas sector.

At 10.4 times trailing earnings, with a 4% yield, BMO stock is an intriguing dip-buy for beginners brave enough to jump in amid intense market volatility.

The post Beginners: 2 Extremely Oversold Stocks Due for a Pop appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in BANK OF MONTREAL and Restaurant Brands International Inc. The Motley Fool recommends Restaurant Brands International Inc.

2022

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