The TSX scared investors a while back by dipping almost 6% in the last few days, but it has recovered and is going strong again. But since another market crash is almost a certainty, especially with the second wave rekindling old fears and a new phase of tiered lockdowns being considered, we might see a lot of small dips in the market before it truly crashes down.
Right now, you wouldn’t be a pessimist in assuming that the market will crash again; you’d be a realist since all the signs are pointing to it. And part of being realistic is to prepare for the horrible eventuality. As an investor, that means keeping an eye on the stocks you are going to buy. There are multiple metrics you can set to make your buying process more manageable.
Some of the stocks are a bit expensive now; if they dip just 10%, they might fall in the fair valuation range. Or you might set the 10% mark to identify downward momentum, assuming that if the dip has entered double digits, the stock might keep moving down and hit rock bottom eventually. Whatever your reasoning, now is the time to start following stock movement and wait for one of your favourites to dip 10%.
A chemical company
The first thing we should clarify about AirBoss of America (TSX:BOS) is that it might not be an excellent long-term holding. It’s an Ontario-based company that creates customized rubber-based formulations for various industries, and its last five-year stock performance seems like a sad representation of heavy industry decline. But the stock performed exceptionally well after the market crash.
It can prove to be an outstanding recovery stock to look out for. From its lowest position in March to its highest valuation at the end of July, the stock grew 400%. That’s better than Shopify and Lightspeed. And even though it has cratered about 26% from its yearly high valuation, it’s still 300% higher than its lowest valuation.
This is one of the stock you should keep an eye on. A 10% decline at its current valuation might not make that much of a difference in the overall curve, but it might also be an indicator of the stock hurtling towards rock bottom again.
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A tissue company
The year 2020 has taught us the importance of tissues, at least — and not just in the supermarkets — but also on the TSX. Mississauga-based KP Tissue (TSX:KPT) grew about 67% (at its best) after the market crash. While it doesn’t seem very powerful, especially compared to AirBoss, a better reason to look at this tissue company is its dividends. Right now, it’s offering a juicy yield of 5.9%. A 10% decline in the share price might as well pump it up to 6%.
And if you can wait a while and let the stock drop further, you might see yields rise even more. At its lowest valuation, the company has sustained its dividends through a massive 8.9% yield (in 2018). The balance sheet is strong. The company has increased its income substantially in 2020 third quarter compared to the third quarter last year.
Shortlisting the stocks you want to track for the second market crash is a good idea because if you keep looking at the broader market and wait for good opportunities to arise, you may only be able to buy good companies at a great price. However, it’s better to identify and track great companies so that you can buy them at a great price. An opportunistic approach may or may not pay off, but the system approach usually does.
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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 Adam Othman owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.