2022 has shaped up to be one of the most turbulent and volatile years in quite a while. Between rate hikes, high inflation, the COVID Omicron variant, a questionable round of earnings, and the big valuation reset, there are many reasons for investors to sit on the sidelines to wait for the waters to calm. By doing so, however, you could be dooming yourself to mediocre performance.
Why?
Many people view volatility as risk. The higher the beta, the greater your risk of losses will be, right? Perhaps for near-term investors or traders looking to make a quick buck. But for long-term investors looking to build wealth through the course of decades, volatility should be viewed not as a negative, but as an opportunity to pick up more shares of wonderful businesses at better prices.
January-February 2022: Growth sours; Value shines
If you don’t need to sell anytime soon, then why care about how much volatility is in the market?
If anything, you should hope for greater volatility, so you can pick up shares on days when Mr. Market has it completely wrong. After last week’s social media selloff, many names, including Snap, got unfairly dragged into the gutter, only to skyrocket in the following trading session. Indeed, this is absurd volatility. Snap plunged over 20%, only to rocket over 60% the next day. Many long-term investors didn’t sign up for such off-the-charts volatility. In a way, the market’s pricing may be inefficient. But if you don’t sell or worry about the day-to-day moves, you don’t need to hit the panic button. Instead, buy the unfair drops and take profits on the overswings to the upside.
Undoubtedly, 2022 has been most unkind to tech. While I believe there are bargains in that sector, given the magnitude of the damage that’s already been done (many high-multiple tech stocks are off over 60-70% in anticipation of higher rates), I think that most investors can do fine in traditional value names. There’s no sense in catching a falling knife. Although you should look to buy on the way down if you spot a wonderful company that’s oversold due to exogenous factors.
Could 2022 be the year that value strikes back? I think it could. And the TSX Index may finally outpace the S&P 500 after years of lagging behind.
Suncor Energy: Great value; Intriguing tailwinds
Currently, Suncor Energy (TSX: SU)(NYSE: SU) stands out to me as a company that has the stage set for smooth sailing through year’s end. Energy prices have been skyrocketing, with WTI blasting past the US$90 mark. Indeed, the US$100 level is in sight, and if it is surpassed, I’d look for Suncor’s rally to pick up steam.
Suncor lost the throne in the Albertan oil patch during the worst of the pandemic. It slashed its dividend and lost the market cap lead. As industry tailwinds pick up, though, one has to think that Suncor has more room to run versus many of its peers that have hugely outperformed it. Suncor is still a great business that’s gushing with cash flows. While it made more prudent and conservative moves when times were tough, I don’t think it deserved to be as punished as badly as it did. As the oil rally picks up steam, expect Suncor stock to make up for lost time.
Indeed, value and stock momentum can exist together. And Suncor is the epitome of value in a year that could continue to see investors take a step back.
