Stock markets witnessed one of the most brutal selloffs in the last couple of months. TSX stocks at large have fallen around 30% since late February. The picture will get gloomier, as the first-quarter earnings season begins in the next few weeks. To add to the woes, there is no certainty about when the lockdowns will be eased and business activities will normalize.
Even though there was some recovery in the global financial markets in the last few weeks, recession fears are increasing day by day. With so much uncertainty around us, is it really a good time to invest in stocks?
Time in the market versus timing the market
The answer is yes and no. If you are looking at this market crash as an opportunity to make some quick bucks, it might not work. Empirical evidence shows that average investors like you and me are poor market timers. It’s almost impossible to buy right at the bottom and sell right at the top.
The pandemic-driven market weakness could last for months or even years, unfortunately. No one knows when things will get back to normal or when TSX stocks will stabilize. One thing is for sure: markets will be highly volatile.
As that old adage goes, the stock market is the only market when buyers run away when there is a discount. In the 2008 financial crisis, I remember people saying that stocks would become worthless. Major stock market indexes halved in value back then but recovered soon in the subsequent years. The pandemic-driven market crash is indeed a “once-in-a-century” event, but this too shall pass.
In these uncertain times, I would prefer to keep things simple. There are many top TSX stocks that have tumbled around 30%, 40%, or even more than 50% in some cases. I will unquestionably go for some well-known Canadian heavyweights that have been around for a long time and have seen troubling times in the past.
Why look for some small-cap value opportunities for marginally higher returns and assume higher risk? Why go after some jazzy growth stock that may have a big gain potential but higher risk? Interestingly, many top TSX stocks currently have an encouraging risk/reward proposition, particularly after the market crash.
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Top TSX stock: Royal Bank of Canada
The biggest Canadian bank by market cap, Royal Bank of Canada (TSX:RY)(NYSE:RY) is one of the biggest household names. Top TSX stock RY has fallen almost 25% amid this coronavirus crash and is currently trading at its four-year lows.
Royal Bank of Canada has been around for centuries and has seen quite a few recessions. It emerged stronger after those challenging times.
The bank has more than 16 million customers worldwide, which gives it a cash flow stability and diversified earnings base. The bank looks well placed to weather these tumultuous times, mainly because of its strong balance sheet and a mammoth scale.
Royal Bank of Canada stock is currently trading below 10 times its estimated 2020 earnings. That’s a notable discount against its five-year historical average of 12 times. Its long dividend payment history and a fair yield of around 5% make it look even more attractive at the moment.
There are many such top TSX stocks that are available at a large discount and offer stability. So, picking out high-quality businesses that have stable earnings and pay stable dividends over the years will pay off in the long term. In a nutshell, investors really don’t have to worry about buying at the exact lows. When you invest in multiple installments, a major portion will go near the lows and that will be fruitful for long-term investing.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.