The TSX Stocks I’m Avoiding in October 2022

Investors navigating a volatile market may want to avoid TSX stocks like Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and others in October.

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published October 10, 2022 2:00 pm EDT

The S&P/TSX Composite Index suffered another triple-digit decline to close out the first week of October. Canadians are celebrating Thanksgiving today, but it never hurts to look ahead to the coming week’s trading sessions. Today, I want to look at three TSX stocks that I’m avoiding as we approach the midway point this month. Let’s jump in.

Caution, careful — Image source: Getty Images

This TSX stock was overbought in the past month

CCL Industries (TSX: CCL.B) is a Toronto-based company that is engaged in the manufacture and sale of labels, and provides media and software solutions. Shares of this TSX stock have climbed 10% over the past six months as of close on October 7. The stock is still down 2.4% in the year-over-year period.

This company released its second-quarter fiscal 2022 results on August 10. It delivered sales growth of 14% to $1.61 billion. Meanwhile, net earnings climbed 6.8% to $163 million. Adjusted basic earnings per class B share came in at $0.94 — up from $0.89 in the prior year. Sales jumped 13% to $3.1 billion in the first six months of fiscal 2022. Moreover, net earnings increased 4.3% to $313 million.

Shares of this TSX stock currently possess a favourable price-to-earnings (P/E) ratio of 18. In the first half of September, CCL Industries creeped into technically overbought territory. I’m betting that CCL Industries still has some give in this choppy market.

Here’s why I’m avoiding cannabis stocks in 2022

The S&P/TSX Capped Health Care Index plunged a whopping 11% on Friday, October 7. This was primarily due to a bloodbath for Canadian cannabis stocks. Cannabis stocks appeared to gain momentum on the back of murmurs of United States legalization progress. However, this hype has quickly died down.

Canopy Growth (TSX: WEED), one of the top cannabis producers in Canada, saw its shares drop 25% on October 7. This TSX stock is down 66% in the year-to-date period. That has widened its year-over-year losses to 76%.

I have found it difficult to summon any optimism for the cannabis sector in recent years. Canadian leadership seemed to pull out everything in its bag of tricks to limit the success and growth potential of this industry from the onset. This country should have found itself in a position to dominate the global cannabis market. Instead, it now finds itself struggling to command sales growth from the domestic market. Canopy Growth is executing its core strategy, but it may need an assist from south of the border before it can overcome the challenges at home. I’m steering clear of these TSX stocks in October.

One more TSX stock that looks overvalued right now

Cameco (TSX: CCO) is a Saskatoon-based company that produces and sells uranium. This TSX stock has dropped 6.8% month over month as of close on October 7. Its shares are still up 22% in the year-to-date period.

Investors can expect to see the company’s next batch of results in early November. In the second quarter of 2022, Cameco posted adjusted net earnings of $72 million, or $0.18 per diluted share — up from a net loss of $38 million, or $0.10, in the previous year. Cameco has delivered strong earnings growth, but the stock looks pricey at this stage in October. I’m more inclined to pursue discounted TSX stocks in this volatile environment.