Sector rotation is common and inherent in the stock market cycle, typically occurring when capital shifts from previously favoured industries to surging or outperforming sectors. This natural event could affect quality stocks and result in mispricing. Fortunately, the short-term market disruption opens a buying window.
Right now, OpenText (TSX:OTEX) and Stella-Jones (TSX:SJ) trade at a discount, offering good entry points. Both stocks have rebound catalysts and are strong buys ahead of a bounce back.
Deep value opportunity
OpenText suffered a significant decline, although its underlying fundamentals show strong turnaround potential. At $34.06 per share, the stock is down 22% year-to-date. Nonetheless, it remains a gem in the high-growth technology sector. OTEX pays a lucrative 4.6% dividend, offsetting weakness in capital growth.
The $8.3 billion software company specializes in enterprise information management (EIM) and provides a cloud-based platform of software, solutions, and AI-powered tools. Its products are deeply integrated and highly “sticky.” The 10-year average deployment lifespan is a competitive advantage, protecting OpenText’s market position and preventing competitors from replacing it.
In fiscal year 2026 (12 months ending June 30, 2026), total revenues increased 1.5% year-over-year to US$5.3 billion, while GAAP-based net income rose 47.5% to US$643 million from a year ago. In Q4, GAAP net income soared 440% to US$156 million. Also, the Board approved a 5% increase in dividend per share for the fiscal year.
OpenText CEO Ayman Antoun said, “AI is creating urgency for every organization, but trusted data determines whether AI delivers value. OpenText is the secure data foundation in the AI stack. Enterprise-grade data is our differentiator, and it is how we will turn the AI opportunity into sustainable growth.” The estimated addressable market opportunity is US$300 billion.
“As we enter fiscal 2027, our focus remains on cash generation, debt reduction, and capital allocation that positions OpenText well in the year ahead,” added Steve Rai, Executive Vice President and Chief Financial Officer of OpenText. The estimated addressable market opportunity is US$300 billion.
Durable infrastructure moat
Stella-Jones operates in the wood and lumber industry, providing industrial infrastructure solutions. The $4 billion Saint Laurent-based company manufactures and distributes railway ties, utility poles, residential lumber and industrial wood products across North America. It caters to electrical and telecommunications companies, railway operators, and the residential retail market.
In the first half of 2026, sales increased 1% year-over-year to $1.8 billion, though net income declined 39% to $121 million from a year ago. Eric Vachon, President and CEO of Stella-Jones, said near-term cost pressures impacted the quarterly results, but stressed that underlying market fundamentals for utility products remained favourable.
Vachon expects some of the higher costs to moderate in the second half of 2026, resulting in improved margins. At $74.08 per share, SJ is down 12.3% year-to-date. However, the modest 1.9% dividend yield is super safe, given the conservative 27.5% payout ratio.
Final takeaway
Quality stocks may display short-term weakness at times, but it doesn’t necessarily mean business failure. OpenText and Stella-Jones possess strong earnings power and established competitive moats that should drive a stock recovery.