The TSX Index continues to be dragged lower by its peer indices south of the border, which have been unstoppable in recent months. The tech-heavy Nasdaq-100, the hottest of the red-hot U.S. indices, was riding a multi-day winning streak before it went crashing down, plummeting 11% in just three measly trading sessions. Tesla, the hottest momentum stock on the planet, imploded 35%, punishing rookie investors who got in at the wrong time.
Indeed, many beginner retail investors have been chasing this market ever since it blasted off from its March bottom. Many such beginners haven’t taken any profits, and a select few are likely speculating on margin. As we witnessed in the 2000 dot-com market crash and the Great Crash of 1929, any time investing becomes fun through the eyes of Mainstreet is when things start getting dangerous. It’s fun, even euphoric, to make big money over the short term. Of late, it’s been too fun. I’ve been warning investors to curb their optimism, as we’re still not yet out of the woods when it comes to the COVID-19 crisis.
Moreover, I warned that a repeat of the early 2018 post-melt-up meltdown was likely given parabolic market moves are anything but sustainable. However, I’m sure many tell themselves, “things are different this time around,” disregarding the speculative crashes of the past.
The rise of commission-free trading platforms, the injection of CRA CERB (Canada Emergency Response Benefit) cheques, and quarantine-induced bouts of boredom have made it easier for young retail investors to speculate on a market that only seemed to go up. Now that Mr. Market has pulled the rug from underneath these beginner investors, is it time to buy the dip once again? Or are we headed back to the depths of March?
Healthy correction or the significant sell-off that Warren Buffett has been prepping for?
I think we’re amid a much-needed correction that’s draining excess leverage from the markets. Many rookies are probably receiving margin calls, and while there’s no telling when the selling will end, I think investors should start doing some buying now that the TSX Index is back in correction territory (10% peak-to-trough drop).
While there are still pockets of severe overvaluation out there (think Telsa) that have yet to be fully corrected, there are a tonne of bargains out there that contrarians should seek to scoop up, as equities, I believe, remain the only game in town given an accommodative U.S. Fed and near-zero interest rates. Simply put, this is a stock picker’s market. And as Mr. Market throws perfect pitches your way over the coming days and weeks, you should swing with any excess liquidity that’s built up.
This TSX market crash is buyable; just be careful what you buy and how you buy it.
What should you buy? It’s probably too early to back up the truck on momentum stocks and first-half winners like Docebo. While it makes sense to nibble at them on this recent tech wreck, I’d be more comfortable recommending firms that are known to be undervalued. Think Restaurant Brands International, a capital-light growth stock that’s poised to come roaring back once COVID-19 starts pulling back in 2021.
My financial models show that Restaurant Brands is a $105 stock. And while I don’t suspect there will be much pent-up demand for Whoppers and Double-Doubles, I think the fast-food play is in a spot to enjoy ample revenue growth, because I find it likely we’ll be propelled into a severe recession that could well outlast this pandemic.
With a 3.8% dividend yield, Restaurant Brands is a prudent bet for value, growth, and income investors alike. And the name could be where the puck could be headed next, as we head into the third and final period of what’s been a brutal 2020.
