If you’ve got excess cash sitting around in your TFSA, waiting to be put to work after a market crash, I’ve got one thing to say to you: stop timing the markets! While it’s never a bad idea to have dry powder on the sidelines to buy on market-wide dips, there exists a line between having just enough cash and hoarding cash. The latter could be a huge detriment to your long-term results, especially if you’re a young investor like a millennial who’s hesitant about the getting back into the market waters after the latest U.S.-China trade truce.
You see, a truce could be interpreted in many ways. Bulls think the “end” (for now) of a trade war will be a boon for the markets. Bears believe the truce is a sign of weakness for the U.S. and that the trade war will now be “won” by China. Other folks think that the truce or a peaceful resolution to the trade war is another reason for the Fed not to cut interest rates — a negative for stocks.
It’s not only tough to judge the outcome of a contingent event such as who “wins” a trade war, but it’s also just as difficult to gauge the market’s reaction to such events. Instead of trying to pin odds on outcomes and market reactions, it’s a better idea to play both sides of the coin by being invested in the markets with enough cash to keep you content with unexpected pullbacks.
When it comes to your TFSA though, I’d say being underinvested is a huge risk. So, investors should think about putting their TFSA funds to work if they’re to leverage the full power of long-term tax-free compounding. And at this juncture, I think those looking for ideas ought to check out Stella-Jones (TSX: SJ), a mid-cap producer of “pressure-treated” wood products including rail ties, utility poles, and the like.
As a wood product producer, the firm’s margins are sensitive to the price of lumber (the input) and while this may imply near-term fluctuations in shares, longer-term investors would be comforted to know that the demand in the products Stella produces will likely remain consistent with over prolonged periods of time.
You see, rail ties are ridiculously boring, but they’re also indispensable, and to date, nothing quite ties rails together better than pressure-treated wood. And as rail ties wear and tear with the times, they’re going to need to be replaced, and that’s where Stella-Jones comes in. Similarly, with utility poles, the demand for Stella’s main products is expected to remain fairly consistent over the long haul.
Management sees increasing demand for railway ties and utility poles moving forward, and if their forecast is at all accurate, Stella Jones could be ready to breakout after years of hovering around its fairly large channel of consolidation. Fellow Fool Kay Ng sees the relative consistency in Stella-Jones’s niche as a source of stable dividend growth over time, also commenting on the fact that the firm hiked its dividend for 13 straight years.
At just 1.5 times book with a 15.6 EV/EBITDA, Stella is on the cheap side based on historical averages. Given the favourable forward-looking outlook and the dividend-growth potential, Stella-Jones is a stellar long-term bet that’s fit for anyone’s TFSA.
Stay hungry. Stay Foolish.
