Value Investors: Why Constellation Software Shares and This Canadian REIT Are Today’s Bargain | Jobi Cool


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The TSX Composite Index has fallen over 10%, heading into a bear market. The dip has created an opportunity for value investors to buy stocks this holiday season. Some interest and dividend stocks fall because the entire market is in sell mode, while their fundamentals remain the same. Such stocks are worth buying during the dip. Now is the time to buy two stocks that have hit 52-week lows.

Constellation software stock

Zodiac software (TSX:CSU) is down 20%, or about $490, from its peak and is trading near its 52-week low. What caused the 20% drop? Hedge funds sparked the Dec. 31 rout in tech stocks on early warnings that the Federal Reserve would withdraw stimulus money and raise interest rates. All tech stocks enjoyed temporarily inflated prices as individuals invested their stimulus money. With stimulus withdrawal, inflated prices got a reality check and were corrected.

Shares in Constellation were sold off, falling 20%. It entered the oversold category on October 14. The company’s management used this sale in the technology space as an opportunity to buy several attractive, small vertical-specific software companies. It invested a record $1.2 billion in acquisitions in the first half of 2022. And Constellation didn’t stop there; it has many more offers in the third quarter.

As an umbrella company for software services, these deals will accrue to Constellation’s earnings per share (EPS) and cash flow. A prerequisite for its contracts is that companies have regularly recurring cash flows. This cash flow may slow as companies reduce spending, but it could accelerate in the future. By the time the bear period ends and the recovery begins, Constellation will have acquired a significant number of companies with recurring cash flow.

The stock zodiac sign has lost nearly 16 months of bullishness and is back in June 2021. Now is the time to buy the stock. A single stock can earn you over $500 a year when the effects of the recession subside and the cash flow from these acquired companies is reflected in the stock price.

Investing in real estate bonds

Real estate is another sector that has been hitting new lows. Rising interest rates have made mortgages more expensive and inflation has pushed up rents, offsetting two years of pandemic-induced rental stagnation. The current situation is challenging, but CT REIT (TSX:CRT.UN) has support from Canadian tire.

CT REIT

Canadian Tire turned its stores into a REIT and named it CT REIT. As a result, CT REIT’s largest tenant is Canadian Tire, and the retailer serves as an anchor to draw other retailers near its stores. The REIT enjoys a 99.4% occupancy rate and a weighted average lease term of 8.6 years. These two metrics ensure cash flow through rent.

This REIT leans more toward rentals and less invested in the development and resale of properties. Therefore, any decline in the value of its portfolio will not affect its distribution. Additionally, the REIT maintains a safe distribution payout ratio of 75% despite increasing distributions by an average of 3.2% per year since 2014.

CT REIT survived the brief pandemic-related recession without a distribution cut. It can probably weather a longer recession by halting distribution growth until the economy revives. But no sign of this yet. The REIT’s share price has fallen more than 18% since the first rate hike in March. It hit a 52-week low on October 11 and hasn’t recovered much.

Now is a good time to buy REITs and secure an attractive 5.84% distribution yield. If the stock retraces to its 200-day moving average of $16.8, that’s a 12% upside from its current trading price. If you invest $2,000 in this REIT, you can earn $235 in capital appreciation + $117 in distributions. This is investment income of $351, which may be exempt from capital gains tax if invested through the Tax Free Savings Account (TFSA).

Investing the stupid way

These two stocks have a good chance to recover when the market recovers with an upswing in the economy. They may continue to decline throughout 2022, but all you need to do is stay patient for the long term. Such securities reward patience.



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