Major U.S. indices dipped into a bear market last year, with the TSX Index also treading water, as investors threw in the towel on various stocks, especially those in the tech sector. In 2023, investors are hopeful that markets can turn around, with tech leading the charge. Undoubtedly, some of the hardest-hit losers from last year are leading the charge, with the biggest year-to-date gains.
Indeed, it’s hard to tell whether such momentum in the battered tech firms will be sustainable. Of course, the hardest-hit stocks tend to exhibit the sharpest ricochets off the market bottom. However, as we learned through most of last year, it can be risky to chase anything that’s heating up. A lot of the hottest stocks over the past month may very well be a tad too hot to handle if recovery expectations prove premature.
Undoubtedly, a recession hasn’t worked its course yet. With expectations of a Federal Reserve pivot seemingly partially baked in, investors should continue to invest cautiously for the long haul and not get too excited about recent top performers that may be overdue for a cool-off.
In this piece, we’ll consider three value plays that I think have what it takes to ride higher from here, even as tech continues to send shockwaves through markets.
Waste Connections (TSX:WCN) is one of the “smart-beta” stocks (stocks with low betas and steady long-term momentum) that one can buy on dips and truly forget they own. The firm boasts a wide moat in its markets of interest that seems virtually impenetrable.
Recently, the firm clocked in fourth-quarter (Q4) results that were more or less in line. Sales popped 17%, while management provided a good outlook for the year (no change in spite of macro headwinds). Indeed, waste collection isn’t exactly a business that booms and busts depending on the state of the economy.
The company has been able to call the shots with its pricing. With few alternatives in the industry, Waste Connections has done a terrific job of offsetting inflation.
At 41.9 times trailing price to earnings (P/E), WCN isn’t cheap, but it’s worth the premium, in my book.
Loblaw (TSX:L) is also off a strong year of gains, now up 18% over the past year. Like Waste Connections, Loblaw has had little issue dealing with the inflationary environment. The company already had some of the best deals in the Canadian grocery scene. Amid price increases, Canadians have continued to flock to the value-conscious firm that likely drew in many consumers in the back half of last year, thanks to its price freezes on its No Name label.
Looking ahead, I expect Loblaw to continue raising prices in accordance with inflation without losing any sales. If anything, the grocery giant could continue to experience high levels of foot traffic, as more people look to save money at the grocery store, rather than eating out or ordering in.
Loblaw is a top play to play the trend, and I think momentum can carry into 2023. The stock goes for 18.7 times trailing P/E. That’s a tad high for the grocer, but well deserved, in my opinion.