The first half of 2021 was all about the great growth-to-value rotation, and the reversal has since carried over into the first few sessions of trade in the second half.
Can we expect more rotation back into growth on the back of descending rates on the 10-year Treasury note? Or could another high-tech correction be in store for the growthiest of names? Nobody knows. Investors are looking past the inflation spike and rate-hike schedule — rate hikes could be in the cards starting 2023 — and it seems as though we’ve reached some sort of “Goldilocks” moment.
Despite conditions being “just right” for a continuation of the stock market’s rally, it’s worth remembering that market corrections can strike at any moment. And they tend to be most pronounced when things are good, and investors are more likely to let their guards down. With the insidious “Delta” COVID-19 variant spreading in various parts of the globe, things can still go wrong, and we could witness rotations moving from growth and value to reopening and COVID-resilient names again, like in 2020.
Heck, we could get a mix of rotations and reverse rotations across a wide range of names. That’s why investors would be wise to spread their bets, so they’re ready for whatever Mr. Market has in store for investors heading into the second half of 2021.
So, what are my favourite Canadian stocks to play the second half of 2021?
Insist on good, old-fashioned value stocks, specifically, the less-loved ones on this side of the border. But don’t sleep on the growth gems that could prove to be undervalued if rates continue to sag.
The TSX Index was led higher by energy and financials in the first half, but there could be a new class of leaders for the second half, as commodity prices wane alongside rate-hike fears.
In response to uncertainty, adopt a “barbell” approach, so you’ll be comfortable with any sudden rotations that could strike into year-end. Weighing down one side of the barbell portfolio, you could have a pandemic-resilient king like Shopify (TSX: SHOP)(NYSE:SHOP). On the other end, consider a cheap reopening stock like MTY Food Group (TSX: MTY).
Shopify: One of my favourite Canadian stocks
Shopify is the Canadian technology king that needs no introduction. It’s the TSX’s top dog, and it has continued to defy the laws of gravity, even with the big first-half pullback thrown in — a pullback I’d strongly encouraged investors to take advantage of.
Now, Shopify faces tough comparables going into year’s end, as pandemic tailwinds fade. That said, many investors made a huge mistake by thinking the pandemic was merely a near-term boost, rather than a profound acceleration in the adoption of e-commerce. Undoubtedly, many reluctant online shoppers bought their first goods amid the worst of last year’s lockdowns. Such new customers will likely continue to prefer buying online over physical, even as we return to normal.
If COVID-19 cases pick up again and we’re thrown back into lockdown, expect Shopify to continue to expand its wings. Even with shares priced at above 50 times sales, Shopify is still a buy.
MTY: A cheap reopening play
MTY Food Group is a food court staple that took a major hit to the chin last year.
Shares have mostly recovered, but some chance of a fourth wave of COVID-19 seems to be partially baked in at these valuations. I think MTY stock is a great way to play the reopening of the Canadian economy, which is likely to stay open, as vaccination efforts continue to accelerate.
And if we’re back into lockdown? MTY stock is likely to sag again. But that’s why I’d pair MTY stock with the likes of a Shopify. That way, you’ll stand to win, regardless of what happens next.
