The recent downturn in major stock indices, including the TSX Composite Index, Nasdaq Composite Index, and S&P 500 Index, can be attributed to weaker-than-expected U.S. jobs data for August 2024. This economic signal has heightened recession fears, impacting investor sentiment and causing a ripple effect across various sectors. In this climate of uncertainty, several stocks have experienced declines. Here are three stocks that have been hit hard by recession fears but possess the financial resilience to potentially rebound and capitalize on long-term growth trends.
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Hive Digital Technologies (TSXV)
Hive Digital Technologies has seen a notable 26% drop in its stock price over the past two weeks, dipping below $4 amidst growing recession concerns. The company’s primary revenue source is Bitcoin mining, which has faced headwinds due to the recent halving of mining rewards on April 20. This halving reduced the Bitcoin available to miners daily, from 900 to 450. Although Hive’s revenue growth slowed, the increase in Bitcoin’s average price in Q2 2024 partially offset this impact.
Hive’s stock is closely tied to Bitcoin prices, which are influenced by investor confidence. With recession fears dampening confidence, Hive has experienced selling pressure. However, the company’s fundamentals remain robust. Hive has diversified into high-performance computing (HPC), renting out GPU computing power for AI, rendering, and other complex tasks. For the quarter ending June 30, 2024, Hive’s HPC business generated $2.6 million in revenue.
Given the secular trend towards AI and the potential for Bitcoin price fluctuations to create windfall gains, Hive’s stock could rebound significantly. Investors with a bullish outlook on AI and Bitcoin might find Hive a compelling stock, potentially doubling their investment in a stronger economy.
goeasy (TSX)
goeasy, a subprime lender, has faced significant stock price declines since August, driven by recession fears. A downturn increases credit risk, particularly for subprime lenders like goeasy, which saw a 33% rise in bad debts to $112 million in Q2 2024. The heightened risk environment has naturally led to investor caution and falling stock prices.
Despite these challenges, goeasy is working on strengthening its business model. The company anticipates steady growth in loans receivables and operating margins over the next three years. It has increased its provisions for bad debt to $94 million, representing 9.3% of its total loan book, which aligns with its target range of 8-10%.
goeasy’s strategic expansion into new credit products, distribution channels, and geographic areas demonstrates its commitment to growth. The company’s stock has previously risen by 47% over the past 12 months despite high-interest rates. Although short-term risks remain, goeasy’s potential for double-digit returns in the mid- to long-term could make it a worthwhile investment for those willing to weather the current economic storm.
Nvidia (NASDAQ)
Nvidia, a leading technology company, has recently faced a stock price dip, bringing its valuation to an attractive level around $100. While Nvidia’s stock might seem overvalued in the short term, its broad portfolio of technologies positions it well for long-term growth. The company is a dominant player in AI, high-performance computing, and graphics processing, and it remains crucial for applications ranging from self-driving cars to cryptocurrency mining.
Nvidia’s revenue is subject to cyclical fluctuations in technology budgets, but its strong asset-light model and substantial cash reserves provide it with significant flexibility. The company continues to innovate across various sectors, including AI at the edge, rendering, and professional visualization.
For long-term investors, Nvidia represents a promising opportunity. Despite potential short-term volatility, Nvidia’s strong fundamentals and technological leadership suggest that its stock could triple or even quadruple over the next five to seven years. Buying Nvidia on dips could be a strategic move for those with a long-term investment horizon.
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While the recent downturn in major stock indices reflects broader economic uncertainties, stocks like Hive Digital Technologies, goeasy, and Nvidia offer intriguing opportunities for investors. Each company, despite facing short-term challenges, has underlying strengths and strategies that could drive substantial long-term growth. Investors willing to navigate the current market volatility might find these stocks well-positioned to capitalize on future economic upswings.