TSX’s Worst-Performing Stocks: Deals or Duds Today?

Dice engraved with the words buy and sell

There’s nothing better than finding a big sale, especially when it comes to investing in your future and building your wealth. And this year, investors have had that opportunity, with many TSX stocks having sold off significantly.

The primary reason for the major market selloff all year is due to rising uncertainty, which means increased risk. However, that risk and uncertainty are in the short term. So, if you’re a long-term investor, now is a great time to buy stocks.

It’s important to remember, though, that, in general, in this environment, the worst-performing stocks are the ones that the market thinks have the most risk.

That doesn’t mean you can’t buy these stocks. The market isn’t always right. However, because these companies certainly have heightened uncertainty, if you’re interested in buying these TSX stocks, you have to ensure you understand the risks.

So, let’s look at two of the worst-performing TSX stocks of 2022 and whether or not they offer investors a deal today or if they are stocks to avoid.

A struggling utility stock

Many stocks declined significantly this year, especially in higher-risk sectors such as tech. But one stock that many may be surprised to see sell off by almost 50% throughout 2022 is Algonquin Power and Utilities (TSX:AQN).

Algonquin is a utility company, but it also owns green energy assets. As a result, the company is constantly looking to expand its portfolio. To do so, it needs to raise lots of capital.

The problem is that its earnings potential has declined throughout 2022, and the stock has a significant debt load. And while management has signaled that it will try to raise funds by recycling capital and selling off mature assets, that remains to be seen.

Therefore, it’s more than likely that Algonquin will have to trim its dividend in the coming months, especially since management has stated before that one of its main goals is to maintain its investment-grade credit rating. Algonquin’s current dividend yield is roughly 10.5%, showing that the market expects there could be a decline coming.

Furthermore, the stock aims to have a payout ratio of around 90%, and that has been increasing in recent quarters, as its earnings have fallen.

Therefore, to see Algonquin trading roughly 50% below where it started the year is not necessarily surprising. The stock does have a tonne of risk in the short term.

So, you can take a chance and consider buying the stock. However, generally, if you want a higher-risk investment, you’ll look for stocks outside of the utility sector.

And generally, if you want a utility, you’re looking to protect your capital and buy a highly safe investment.

Therefore, Algonquin is a stock most investors will want to avoid, at least for another quarter, to get some clarity on its debt situation, its dividend and how the company can continue to raise capital.

A top transportation stock on the TSX

Cargojet (TSX:CJT) is another popular TSX that’s struggled this year, losing roughly 30% year to date and trading almost 40% off its 52-week high.

One of the big concerns with Cargojet is that much of its sales come from the growing popularity of e-commerce and the rising demand for time-sensitive, overnight shipping.

However, while consumption is expected to slow down, and e-commerce sales are normalizing after the pandemic, Cargojet still has a lot going for it.

The company has attractive long-term contracts and valuable partnerships with major companies outside of Canada. Furthermore, it has a dominant position in Canada, allowing the company to scale its services, which helps Cargojet to maintain attractive margins.

While there is certainly some risk in the near term, as consumption and the economy, in general, slow down, Cargojet continues to offer a tonne of long-term potential, especially when you consider that over time, as we’ve seen in the past, the popularity of e-commerce will only continue to grow.

With Cargojet now trading at a forward enterprise value to earnings before interest, taxes, depreciation and amortization ratio of 7.6 times, down from its five-year average of 11.7 times, the TSX stock certainly offers an attractive valuation for long-term investors that have the patience to wait for a recovery in the economy.

The post TSX’s Worst-Performing Stocks: Deals or Duds Today? appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Algonquin Power and Utilities?

Before you consider Algonquin Power and Utilities, you’ll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in December 2022 … and Algonquin Power and Utilities wasn’t on the list.

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See the 5 Stocks
* Returns as of 12/13/22

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Fool contributor Daniel Da Costa has positions in Algonquin Power & Utilities. The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy.