Recently, the stock market has suffered a stock market crash and stocks have dropped drastically. Last week, stocks generally traded slightly higher, although they are still significantly down from even a month ago.
For the foolish investor with long term prospects, it’s time to pick up cheap stocks from top notch stocks. Buying at these heavily discounted prices is a profitable long-term opportunity.
However, not all titles are just “cheap” because of the crash – some have important underlying concerns. It is therefore important for investors to decipher which stocks are really discounted and which may not be entirely healthy after all.
Today we’re going to take a look at two blue-chip TSX stocks that have been dragged down into the stock market crash. Then we will see if they are ready to recover or if they have serious problems in the future.
Suncor Energy (TSX: SU) (NYSE: SU) is an integrated energy company based in Calgary, Alberta.
Suncor is primarily located in the Canadian oil sands. The company mainly focuses on the discovery, production and refining of crude oil.
At the time of this writing, Suncor is trading at $ 23.63 and brings in 7.9%, which seems like an attractive buy point for a large first-rate Canadian stock, so what’s do not like?
Like most Canadian oil producers, Suncor does not operate with low input costs. As such, they just have to bleed money right now.
Indeed, Saudi Arabia pumps cheap oil at such a rate that the price of a barrel is near or below breakeven for many Canadian producers.
Suncor cannot therefore continue its activities at these long-term prices. Suncor now has other mixed assets, and even power generation operations, but the sale of crude oil is by far its most important source of revenue. Even if it’s not going to go to zero, it’s certainly under pressure.
In addition, OPEC has recently confirmed that it will take steps to try to rebalance the market. Of course, oil just can’t be as cheap in the long run.
However, right now there are probably other investment opportunities where you can capture a similar return and a similar rise in the stock price, with less significant risk.
Scotiabank: buying a stock market crash?
Bank of nova Scotia (TSX: BNS) (NYSE: BNS) is the third largest bank in Canada in terms of market capitalization. As a large bank in Canada, it is known for its steady growth and rock-solid dividends.
At the time of writing, Scotiabank is trading at $ 57.40 and returns 6.28%. But has Scotiabank just pulled out with the market, or are there other factors at play?
Well, interest rates are certainly very low right now, and there will be the necessary mortgage carryovers that can hurt the bank’s immediate cash flow.
However, interest rates work both ways for banks and should only slightly reduce margins.
What’s more, mortgage deferrals are just that: deferrals. Scotiabank will recover this money at some point, and in the short term, it can use government liquidity assistance to maintain healthy liquidity.
In the long term, feelings should always be positive for Scotiabank, as it is a major player in one of Canada’s safest industries.
Stock market crash strategy
Long-term investors should benefit from a large stock market crash. To do this, they can seek to buy lower-priced stocks of first-rate stocks to hold for the long term.
However, certain securities, such as Suncor, may carry additional risk. It is important that investors consider other factors before deciding that a security is simply “cheap” due to the stock market crash.
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Crazy contributor Jared Seguin has no position on any of the titles mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.