Plummeting crude oil prices and COVID-19 have finally brought the longest bullish streak of the market to an end. The TSX Index has entered a recession. The lockdowns prompted by coronavirus will have a far-reaching impact on the economy. In short, we might be in for an extended bear market.
As a Tax-Free Savings Account (TFSA) investor, you can make this one move in this bear market that will bring home the bacon in the long run, which is to buy oversold stocks. The bear market has unleashed a sell-off spree that has turned many overvalued stocks into well-priced options.
It’s time for long-term investors to get greedy and buy stocks that have good prospects on the other side of the bear market. Here are a couple of oversold stocks one can consider for increasing your TFSA wealth in the long run.
Luxury clothing brand
In the third quarter of 2018, it looked as if Canada Goose (TSX:GOOS)(NYSE:GOOS) stock would cross the magical $100- mark. But that was the peak of this clothing brand stock. Since then, it has struggled to keep upward momentum. The current market crash has amplified the woes of Canada Goose — stock that was once rallying north of $90 has crashed below $30.
Right now, it’s one of the most oversold stocks on the TSX. If you have spent enough time in the market, you would know that a stock that stands on consumer discretionary goods is always the first one to fall following an economic downturn. Thus, it is not a surprise that Canada Goose is getting thrashed left, right, and centre right now.
It doesn’t mean the stock is done for good, however. Canada has excellent value as a premium winter clothing brand and has the potential to enter and win a new market without funneling too much into marketing.
Also, the company’s multifaceted business footprint which includes wholesale, brick-and-mortar, and online operations give stability to its earnings. Amid all this downturn, the company is still expected to experience a 6% increase in its sales this year.
If your investment horizon is longer than a year or two, Canada Goose can be a great oversold addition to your TFSA.
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Still a Big Five bank
Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is among the Big Five Canadian banks. The stock was trading north of $100 on New Year’s Eve and is down by nearly one-fourth of its price since then. The slowed corporate borrowing and hike in consumer defaults can trouble CIBC for some time to come.
However, the Canadian government’s decision to buy $50 billion worth of mortgage pools will give some relief to the bank. Also, the bank’s profitability and robust capital position assure that the CIBC stock may recover from this abysmal performance in a couple of years.
The stock has a trailing P/E of 7.4 multiples, indicating that CIBC could be an oversold buy for long-term TFSA investors.
The stocks you choose during this crisis could have a large impact on your investment accounts in the future. You can use your TFSA to earn tax-free returns after this recession ends.
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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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Canada Goose Holdings.