Investing in the Toronto Stock Exchange (TSX) is a little bit tricky right now. Most TSX stocks have experienced a significant drawdown in 2022. However, over the summer months, many stocks (especially technology and growth) have been rallying.
Is this another phase of a long-term bull market rally, or is it a bear market rally with more downside to come? I’ll let economists and strategists debate over that. Frankly, it is futile to have an answer. Does anyone really know what the future holds?
Foolish investors think by decades, not months
Foolish investors don’t look at stocks by month or by quarter. Rather, we look for stocks with long-term trends and tailwinds for growth and a significant market advantage.
When you think in years and decades, short-term market fluctuations matter so much less with these types of TSX stocks. It never hurts to be patient for stocks to reach an attractive entry point. However, sometimes the greatest stocks never really become “cheap.”
That is why it is crucial to regularly save and regularly invest. Over time, you can dollar cost average into portfolio positions. If you don’t tinker too much with your portfolio, great companies can create great value. If you have $500 to invest today, here are two high-quality TSX stocks to consider averaging into.
A top TSX dividend stock
In this volatile stock market environment, it doesn’t hurt to have some extra dividend stocks. If the market were to dip again, at least you can collect a decent cash dividend return throughout the year. One of my favourite TSX dividend stocks is Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP).
Brookfield benefits from several tailwinds in this type of market. Firstly, its portfolio is somewhat inflation resistant. 70% of its assets have inflation-indexed contracts. When the economy overheats, it gets the bonus of higher contracted rates.
Secondly, it has a diversified and well-hedged portfolio. It is diversified by geographic exposure, and it has a portfolio of diverse assets across energy infrastructure, transportation, utilities, and data/cellular towers.
Thirdly, it has a very strong balance sheet. Debt maturities are long-dated, and it has ample liquidity. If the economy declines, it is in a very strong position to counter-cyclically deploy capital into cheap assets.
It has used this strategy for more than a decade. This has fueled attractive, low-risk average annual returns over the 15% range. Today, this TSX dividend stock also earns an attractive 3.5% distribution yield.
A top TSX growth stock
If you want some long-term growth, Topicus.com (TSXV:TOI) is a very interesting name to consider. It was spun-out from Constellation Software early last year as an investment vehicle with a sole focus on Europe.
Like Constellation, it acquires mainly small, niche vertical market software businesses. Given that Europe has many countries with diverse regulations and languages, there are thousands of potential acquisition opportunities.
The thing that differentiates Topicus.com from Constellation is that it is growing faster organically. It has a very strong software development franchise that it is expanding across borders.
The company has had some mixed quarters due to several accounting measures related to the spin-off. These are largely behind it. Soon, shareholders will start to see a clearer picture of its growth trajectory and earnings potential. The stock is down 36% in 2022 and now may be a nice opportunity to add it to your portfolio.
