Stagflation is a term that’s been thrown around a lot of late. The toxic combo of high inflation and slow growth makes for a very toxic environment for investors. When there are few places to hide, it can seem daunting for RRSP investors. Stagflationary environments are rare and tend to be short-lived, given inflation tends to cool as economic growth does. As the Fed and Bank of Canada raise the bar on interest rates, it will be interesting to see if inflation can roll over at a quicker rate than the economy.
When you hear words like stagflation and recession, it’s easy to dump your risky assets for something safer. Why be invested when a recession seems like a given? We’ve heard big banks raise their recession expectations from 20% to 50%. And it could rise even further.
These days, some believe we’re already in a recession. We will never really know until well after the fact. In any case, the stock market has already taken so much damage. Could it fall further, as stagflation or other metrics get worse? Definitely. However, inflation can still back down. And if corporate earnings can stay robust, there’s a real chance that the market’s upset stomach has already been alleviated.
Remember, markets are looking forward to a potential recession in 2023. If no recession happens, the markets could be wrong and in need of a huge upside rally. Though I wouldn’t try to bet on the economy’s next move, I would take advantage of stock picks that have what it takes to persevere through hard times.
Now, you could buy the defensives, as so many folks seem to recommend these days. However, valuations have become quite swollen of late, given many investors are bracing for a hailstorm in the quarters ahead. While defensives are magnificent ways to play a downturn, they’re less wonderful if you overpay.
That’s why I’d be a buyer of cheap securities that have long-term secular trends in their favour. For long-term investors, it’s secular trends that matter more than the economy’s ups and downs.
Currently, Shopify (TSX:SHOP)(NYSE:SHOP) and Lightspeed Commerce (TSX:LSPD)(NYSE:LSPD) seem enticing for younger RRSP investors with time on their sides. Yes, they’re the opposite of defensive. But I do find their valuations to be intriguing here.
Shopify
Shopify is an e-commerce darling that skyrocketed nearly 10% on Tuesday, as rates fumbled over recession fears. As Shopify continues innovating through harsh times, I think the company could have a world of upside for contrarians willing to give the digital commerce player the benefit of the doubt.
Yes, retail could slow further and weigh on future quarters. That said, e-commerce is on the right side of a secular trend. And Shopify is a firm that will be a significant winner come the next bull market.
Lightspeed
Lightspeed is a commerce enabler that’s been in a world of pain, just like Shopify. After a nearly 4% pop on Tuesday, there is hope for the firm that’s seen shares lose over 80% of their value. Eventually, the crash will overshoot to the downside, if it hasn’t already. At writing, LSPD stock trades at 6.1 times sales. That’s not all that bad for a company that’s still poised to grow over the long run.
Arguably, LSPD stock is cheaper than the so-called value stocks. Once the Fed begins to cut rates after overshooting with tightening, count me as unsurprised if LSPD stock leads the way higher.
