Waiting for a market sell-off before putting your money to work is a fool’s (that’s a lower-case “f,” folks!) game. There’s no bell that goes off once the correction hits. With the growth-heavy Nasdaq 100 recently falling into a correction, numerous Canadian growth stocks like Kinaxis (TSX:KXS) were dealt with amplified downside. And if you were waiting for your shot to pounce, the recent sell-off, I believe, is a solid buying opportunity.
Even if growth stocks still have room to fall, as U.S. bond yields continue their ascent towards 2%, I think the greatest risk for today’s young investors is walking away from this sell-off empty handed, especially those with ample cash on the sidelines.
Bond yields still stink. The returns relative to inflation are still negative, making stocks one of the few decent ways to grow your wealth over time. Sure, prospective returns over the next decade may be a tad lower than in the last decade, but you’ll still be far better off with cash, as the markets are unlikely to crash as they did a year ago.
If you see a bargain, pick it up
Now, I have no idea what the bond market’s next move will be. In any case, 2021 will be the year of volatility, with rotations and reverse rotations that’d be enough to make any new investor toss their cookies.
This Monday, we saw the U.S. bond yield pull back below 1.7%, as coronavirus jitters and concerns over the Turkish Lira gripped the stock market. Have we reached an environment where good is bad and vice-versa? It’s a confusing time, to say the least. Regardless, investors should stay the course and scoop up the bargains on their watch lists because there’s no guarantee they’ll stick around tomorrow.
Will we witness more reverse rotations back into growth like the one witnessed this Monday. I wouldn’t doubt it. In any case, investors should not lower the bar due to changed circumstances. Reasons for a market sell-off or rotation will always be different. And you can always find points to justify lowering the bar on the stocks on your radar.
Rather than worrying about what most others have already worried about, look to the quality merchandise that’s been ditched. In case of the tech-driven sell-off, Canadian growth stocks are the items that have been tossed into the bargain bin, and they could be ready to roar should more reverse rotations be in the cards over the coming weeks and months as we climb out of the Great Coronavirus Recession.
A great Canadian growth stock that’s down over 30%
Consider shares of Kinaxis, which are now sitting down over 30% from its all-time highs. The supply-chain management software developer has felt immense pressure from the rotation out of growth, losing 25% of its value in just the first week of March.
Indeed, the Canadian Software-as-a-Service (SaaS) stock has felt pressure from all sides. The firm’s pandemic tailwinds are slated to die down, as is the demand for its solutions as supply chains return to order. In prior pieces, I highlighted that Kinaxis’ offering was still likely to be in high demand in the post-COVID environment, as supply/demand imbalances could persist well after this pandemic is over. In a return to normalcy, I wouldn’t at all be surprised to see demand for Kinaxis’s solutions remain robust as supply chains become overwhelmed on the demand side.
Only time will tell if Kinaxis can build upon the strength it created in 2020. Regardless, I think the 30% crash in the stock is overblown, opening up an interesting window of opportunity for venturesome investors who are no strangers to volatility.
Foolish takeaway
If you’re a young investor with too much cash on the sidelines, stop waiting for another sell-off. Like it or not, compelling growth bargains like Kinaxis exist now, but there’s no guarantee they’ll be here once you’re ready to invest.
