Screaming buys don’t come around all too often. When they do, you need to be ready to pounce, because, like it or not, they can disappear in as little as one trading session. Indeed, the harder they crash, the more pronounced the recovery relief bounce can be! While I wouldn’t go chasing the fast-falling knives in the tech sector quite yet (many names are bubbles that burst and are not coming back anytime soon!), I would look to areas of the market that are rich with value.
Think the cheap stocks that have recently become even cheaper over the past several weeks. Market corrections are vicious, and they may drag down many firms that simply had no reason to flop. In recent months, we’ve seen companies with magnificent fundamentals sell off by well over 10% on the back of decent earnings reports. Sentiment has just been brutal, but as a stock picker, you can separate the good stuff from the value traps in an effort to increase your portfolio’s shot at beating the TSX Index.
The correction has opened the door for bargain hunters!
The TSX has held steady versus the U.S. indices, but when you take energy and financials out of the equation, you’ll see that many wonderful companies were following in the footsteps of the S&P 500. Undoubtedly, the profit-taking has been a bit exaggerated when it comes to many of the names. In this piece, we’ll have a look at one value stock that I think is definitely worth grabbing right here, right now, while investors are pondering when Mr. Market will finally put in a bottom after one of the worst starts to a year since 2020.
In short, seek quality merchandise when looking to snag something thrown into the bargain bin! Don’t look to damaged merchandise. Look for the goods that may have been tossed in by mistake. Think wonderful businesses like Royal Bank of Canada (TSX:RY)(NYSE:RY), which is off around 5% from its all-time high.
Royal Bank of Canada: Still the king of the TSX
Royal Bank is one of the highest-quality blue-chips stocks in Canada. Whenever you’re given a correction or “half of a correction,” you should think about topping up. The big bank is a leader, and it continues to demonstrate why it will remain tops on the TSX for many years, if not decades, to come.
While the valuation is richer than its peers, it’s richer for a reason. Royal Bank has one of the best managers out there who can obtain solid returns versus risks taken on. For that reason, the premium attached to shares, I believe, is more than warranted. Today, the premium is far less pronounced, at just 12.6 times trailing earnings. I think RY stock is an absolute bargain after dragging in recent weeks. The 3.4% dividend yield is growthy and will be supported by strong loan growth and better margins.
Moving forward, I expect Royal Bank to continue flexing its muscles, as the financial industry improves. Indeed, the Big Six are great bets in general, but RY stock, I think, could be the best of the batch for beginner investors who should insist on quality and value.