The recent market correction in TSX stocks has affected almost every sector. Even oil stocks that were soaring for most of the year have started to pull back. It appears the stock market is factoring a pretty severe recession in the coming months.
Certainly, there are plenty of macroeconomic concerns to worry about. The stock market is a forward-looking mechanism. It shoots first and asks questions later. A recession may be imminent, but it doesn’t mean every business and sector will perform poorly. This decline will not last forever, and a recovery may be quicker than you can anticipate.
The economy only needs to be “less bad” than the market is predicting for a rally
All it takes is for economic factors to be “less bad” than the market anticipates for a rally to occur. No one can time this. Think long term, stay rational, and own stocks in solid businesses.
If you have some investable cash, the decline is a great opportunity to buy top businesses at significantly cheaper valuations. Here are two top TSX stocks with valuations that are starting to look attractive.
Shopify: A top TSX growth stock on the higher-risk spectrum
I won’t say Shopify (TSX:SHOP)(NYSE:SHOP) stock is cheap. However, it is starting to get interesting at this point. This TSX stock trades for $44 per share (after its recent stock split). Even after a 76% decline this year, it still has a massive price-to-sales ratio of 6.4.
Yet that is down from 52 times sales in July of 2020. In fact, on a price-to-sales ratio, Shopify is the cheapest it has been since 2016. I think, at the very least, that merits some attention by growth-loving investors. Shopify provides an essential e-commerce platform to thousands of merchants across the globe.
Over the long term, it still has ample levers for growth in fulfillment, geographic expansion, and merchant service verticals. This stock is undoubtedly higher risk, so tread carefully. However, for a very long-term hold, it is one TSX stock to start researching from here.
Brookfield Asset Management: A TSX stock for any portfolio
Another TSX stock that has drastically pulled back is Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM). With a price of $57.90 today, it is down 25% this year. Today, it is trading for only 14.5 times earnings and 14.8 times funds from operation (FFO) (its core earnings metric).
Its stock has corrected back to pre-COVID-19 valuation levels. Brookfield has often found ways to profit from recessions and market corrections. Economic worries cause real asset prices to decline. Brookfield can use its strong balance sheet and excess capital to buy cheap assets.
Just a few days ago, Bloomberg reported that Brookfield has started to pour tens of billions of dollars into beaten-down European assets. Given recession concerns, there could be significantly more buying opportunities in the days to come. Brookfield has fared and profited through several major economic downturns. I suspect the same will occur with this one.
This TSX stock trades at a substantial discount to its intrinsic value today. Management is working on some creative solutions to fix that (including spinning-off a piece of its asset management business). For a cheap but high-quality Canadian business, Brookfield is one of the best you can add to while its stock is cheap.
