You’ve probably heard that a handful of TSX stocks are getting a bit expensive. While they may be overdue for a pullback, I’d argue that the favourable macro backdrop could bring forth more of the same in the second half of the year. That means behind-the-scenes rotations (growth to value or reopening to lockdown stocks) and steadily climbing market indices.
With rates likely to climb back above the 1.5-1.8% mark again into year’s end, value may be the way to go, even though growth has shown signs of life in recent months after stumbling for most of the first half of 2021. Moreover, continued vaccine progress is likely to cause COVID-19 cases to abate. Even as new variants of concern appear, I think booster shots, like those created by Pfizer, will give vaccines the edge in its war against new variants.
So, as valuations across the board climb, I think do-it-yourself (DIY) stock pickers can easily put the broader indices to shame by insisting on undervalued companies whose reopening upside may be discounted by your average investor.
Without further ado, consider the following low-risk TSX stocks that could have major reopening upside going into year’s end, even if the broader TSX Index sags in the second half of the year following one of its strongest first halves in years.
When it comes to boring and stable, it’s tough to match Gildan Activewear (TSX:GIL)(NYSE:GIL), a Canadian manufacturer of essential articles of clothing. We’re talking tees, fleeces, and other clothing items that are essentially immune to quick changes in fashion trends that many fast-fashion retailers may be susceptible to.
The company’s operational efficiency is applaud-worthy. Management’s expertise in its niche part of the clothing business makes it worthy of a rich premium. Although essential clothing items are commoditized, I believe Gildan has a pretty wide moat with its incredibly well-run operations that allow it to pass on the value to its customers.
Warren Buffett is a big fan of generic clothing for a reason. It’s stable, easy to understand, and its cash flows tend to be relatively resilient through various parts of the economic cycle. For the first quarter, Gildan clocked in a solid beat, with its “Back to Basics” strategy that appears to be paying off.
Gildan had a disastrous 2019 and 2020, with shares crashing over 72% from peak to trough. The TSX stock now finds itself in rally mode with the economic reopening up ahead. At 3.3 times sales and 4.2 times book, Gildan stock is a value and momentum stock rolled into one.
Canadian Tire (TSX:CTC.A) is a retailer behemoth that hit an all-time high back in May before falling into a correction back below the $200 mark. I think the correction is a great buying opportunity for value investors looking to capitalize on a continued move to normal.
Even as the pandemic drags on, the Canadian icon has already demonstrated that it’s capable of thriving in the new normal. The e-commerce business has been robust, and as more people return to the malls, I’d look for the firm’s mall-based banners (like Sport Chek) to really take off, as shut-in Canadians look to spend the cash hoards they developed throughout lockdowns.
The TSX stock trades at 0.8 times sales and 2.6 times book, which is way too low for a resilient retailer with some of the finest discretionary retail brands in the country.