If you’re one of many TFSA investors who’s just waiting around for the best time to get invested, you could find yourself waiting a ridiculously long time. Heck, the “perfect” time to get in may actually prove to be the worst time, as most others are likely overly bullish, with stock prices and valuations that reflect such optimism.
Back in October, when investors were worried over the U.S. election and its potential to spark a Blue Wave across the states, there was fear in the air. Exacerbated by surging coronavirus cases and little hope for a timely, safe and effective vaccine, markets suffered a horrific and spooky flop towards the end of October. As it turned out, buying at that point of maximum pessimism would have granted you a huge gain over a concise period of time.
Now that the Blue Wave is off the table, with a 90% effective coronavirus vaccine that’s likely to be available in the first quarter of 2021, the stage looks to be set for a massive rally, the likes of which we may not have seen since the early 2018 market melt-up.
With another $6,000 worth of TFSA funds, you’ll be able to contribute in less than two months; it’s about time to start thinking about investing your 2020 contribution. With the vicious growth-to-value rotation, I think there are compelling bargains to be had within names that are well equipped to survive another wave of coronavirus cases to come out soaring out of the gate once COVID-19 is conquered.
The promising vaccine news gives many TFSA investors some light at the end of the tunnel. But we’re still going to be stuck in this tunnel for another several months. As such, investors should seek to go with financially flexible names that stand to suffer from a minimal amount of business erosion as this pandemic drags on and (hopefully) dies down in mid-2021.
Bank of Montreal is a top pick for TFSA investors looking to ride a vaccine-driven 2021 comeback
Consider the Canadian banks like Bank of Montreal (TSX:BMO)(NYSE:BMO) that look well positioned to melt-up in the months that could lead up to the end of the COVID-19 pandemic. With an effective COVID-19 vaccine that’s still months off, there’s more pain ahead over the near term. But now is the time to place your bets while the depressed valuations still exist on the promising blue chips that could be in a spot to correct sharply to the upside.
As you may know, the stock market is forward-looking. It’s probably looking a year or so into the future. With one of the most promising and effective vaccines to date, the future looks very bright, perhaps even brighter than most investors expect, even after the massive relief rally enjoyed in the first week of November.
Bank of Montreal is one of many bank stocks that has already formed what I believe is the early part of a big melt-up that could come to full fruition months before the vaccine is ready for broad distribution. BMO came into 2020 with one of the less favourable loan books. And its stock took a clobbering, with shares getting cut nearly in half from peak to trough back in February and March.
With a vaccine in place, the stage looks set for a profound recovery in 2021. And worries over a pandemic dragging past 2022 are now looking to be off the table. That means peak provisioning activity for BMO and its peers may be in the rear-view mirror, as analysts shift their focus from provisions for credit losses (PCLs) to earnings growth. Now, the low-rate environment still doesn’t bode well for the banks. Still, given the magnitude of BMO’s 2020 decline, any modest improvements will likely be a huge needle-mover for the stock.
Foolish takeaway for TFSA investors
I think BMO could find itself at $100 by year’s end and would encourage TFSA investors to buy such down-and-out blue chips that are still in the early stages of what’s looking to be a profound comeback.
