3 Expensive TSX Stocks I’d Buy if They Took a Dip

Three relatively expensive large-cap stocks are on my buy list if their prices dip in the next market correction.

| More on:

Image source: Getty Images

If the Bank of Canada tightens its monetary policy longer than necessary to bring inflation down, elevated market volatility will persist for the rest of 2022. However, despite strong headwinds, some stocks remain expensive.

If you expect a market pullback in Q4 2022, I’d recommend buying National Bank of Canada (TSX:NA), Constellation Software (TSX:CSU), and Canadian National Railway (TSX:CNR)(NYSE:CNI). These large-cap stocks are buying opportunities if their share prices dip due to more downward pressure.

Temporary weakness

National Bank currently trades at $86.58 per share, is down by 7.45% year-to-date, and is approaching its 52-week low of $82.38. The weakness is temporary, and the bank stock should eventually recover to top $100 in one year. Market analysts covering NA have a 12-month average price target of $102.25 (+18.1%). Meanwhile, the attractive 4.25% dividend yield is relatively safe while you wait for the rebound.

In Q3 fiscal 2022 (quarter ended July 31, 2022), net income declined 2% to $826 million versus Q3 fiscal 2021. Management said the solid performance of all business segments was partly offset by higher provisions for credit losses (PCLs). The $29.13 billion bank had to increase the PCL to $57 million because of the less favourable macroeconomic outlook.   

National Bank’s President and CEO, Laurent Ferreira, said, “We continue to operate in an increasingly complex backdrop.” Nevertheless, he adds that despite the challenges, Canada’s fifth-largest bank is in a solid position owing to its strong capital levels and substantial allowances for credit losses.

Likely tumble

Constellation Software isn’t winning in 2022 (-17.94% year-to-date), and another market sell-off could send the tech stock tumbling. The current share price is $1,922.09, so a drop to below $1,800 should be a good entry point. This Toronto-based firm is known for acquiring, managing, and building market-leading software businesses.

The reach of this $40.73 billion company is global (100 markets worldwide), and its software and services are used across various industries. Some of its specialized, mission-critical software solutions address the specific needs of particular industries. Constellation derives revenue from software license fees, maintenance & other recurring fees, professional service fees, and hardware sales.

In Q2 2022, revenue and net income grew 30% and 43% respectively to US$1.61 billion and US$126 million versus Q2 2021. Constellation’s business model and vertical integration across specific business lines provide the company with competitive advantages. Because of its sufficient cash flows and available credit facility, management said it can continue to grow the business organically without additional funding.

A no-brainer buy

Canadian National Railway is a no-brainer buy for long-term investors. The $101.75 billion company owns legacy assets (railway networks) that are essential to the Canadian economy. As a transportation leader, CNR transports 300 tons of natural resources, manufactured products, and finished goods in North America each year. It is the only railroad that connects Canada’s coastlines with the United States through a rail network that spans 18,600 miles.

At $149.18 per share, the industrial stock underperforms year-to-date (-2.93%) and pays a modest 1.96% dividend. These dividend payouts have increased at an annual rate of 12% in the last five years.

Management expects bigger volume in the second half of 2022, following the record revenue of $4.34 billion in Q2 2022. However, this stock could still experience a pullback from current levels due to the challenging macro environment. Market analysts’ low-price target is currently set at $145 (-2.9%). Considering its significant growth prospects, this is a great stock to consider buying on the dip. CNR is expected to increase adjusted earnings at an annual rate of 15% in the next five years.

Next market correction

Keep NA, CSU, and CNR on your watchlist this quarter and consider scooping them up as long-term holds if they take a dip in the next market correction.     

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Constellation Software. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Gold bullion on a chart
Dividend Stocks

TFSA Investors: Why You Should Invest Your Room ASAP With These 3 Stocks

Choosing the right TFSA stocks for your portfolio might take some time. But with the right choices, you can stick…

Read more »

Target. Stand out from the crowd
Dividend Stocks

Here’s the Next TSX Stock I’m Going to Buy

Innergex is a TSX stock that is growing its revenue and earnings at an enviable pace. It also pays investors…

Read more »

A worker uses a laptop inside a restaurant.
Dividend Stocks

Got $500? 2 Stocks to Buy and Hold for at Least 5 Years

Given their multi-year growth potential and attractive valuations, I am bullish on these two TSX stocks.

Read more »

A bull and bear face off.
Dividend Stocks

5 Dividend Stocks With Reliable Income in a Bearish Market

Canadian investors sweating out a potential bear market may want to target dividend stocks like Capital Power Corp. (TSX:CPX) and…

Read more »

A family watches tv using Roku at home.
Dividend Stocks

2 Streaming Stocks to Buy and 1 to Avoid Like the Plague

Two streaming stocks are good investment options, although the cheaper, high-yield Canadian dividend stock is a better buy than its…

Read more »

analyze data
Dividend Stocks

Telus Stock Rose 1% in November: Is it a Buy Today?

After a mostly flat November, is Telus one of the best stocks to buy in December, as we head into…

Read more »

money cash dividends
Dividend Stocks

How to Generate $500 in Passive Income Each Month

Instead of letting the stock market control your earnings, take control. Earn stable passive income with this strategy.

Read more »

Dividend Stocks

2 of the Best Stocks to Buy for Fast-Growing Passive Income 

In this economy, you need a passive income that grows fast enough to beat inflation in any situation. These two…

Read more »