Tough sledding should be expected by Canadian investors looking to put new money into the stock market in March 2023. January was hot, February was cold, and it’s a mystery as to what the final month of the quarter will see. With renewed worries weighing, I’d not look to overreact either way.
As Warren Buffett said in his latest annual letter to shareholders, “near-term economic and market forecasts are less than useless.” While I’m sure market strategists and those trying to time the market’s next move are smart, I don’t think any amount of wits can predict how Mr. Market will behave next month or even next year. He’s unpredictable by nature. That’s why timing markets is a foolish (that’s a lower-case f) move, especially if you’ve got money to put to work and value in your crosshairs!
Don’t ignore Warren Buffett’s words of wisdom
I think Warren Buffett’s annual letters are rich with wisdom. These days, with market volatility in the air, there is no shortage of near-term forecasts calling for a substantial decline in stock values.
Indeed, markets have already surrendered a big chunk of the year-to-date gains. Based on momentum, then sure, it would seem like there’s more pain ahead. However, if you’ve been in the investing game for long enough, you know that things can turn on a dime and in a hurry.
That’s why it’s such a bad idea to take action in response to new developments that other investors have already had ample opportunity to digest.
In this piece, we’ll check out one stock to buy and one to hold off on, as recession headwinds begin to make an appearance.
A TSX stock I’d buy now: Dollarama
First, we’ll look at the stock I’d buy going into March 2023. Dollarama (TSX:DOL) is a discount retailer that’s done incredibly well over the past year of inflation and economic jitters. As a well-run defensive, Dollarama has an opportunity to continue its growth, even as other economically sensitive firms take a hit to the chin.
The stock is 7% off its January highs and looks like a compelling pick-up for investors who want to do well in spite of the economic pain that may be up ahead.
At 30.5 times trailing price to earnings (P/E), you’re paying up for the retailer. However, I think it’s a premium price worth paying for, given Dollarama’s one of few companies out there that can turn the inflationary environment in its favour. Sure, Dollarama’s recent margins would have been better without the hot inflation. However, in terms of firms that can offset inflation’s pressures, Dollarama ought to receive top grades.
Up ahead, Dollarama is ready to raise prices. And I have a feeling customers won’t resist by opting to show elsewhere. At the end of the day, it’s tough to beat Dollarama’s value proposition.
And one I’d steer clear of: Manga International
Magna International (TSX:MG) is an auto-part maker that’s incredibly well run. Despite this, it’s a cyclical business that will feel the economic bumps in the road much more than firms like Dollarama. Magna stock has sold off considerably, with shares down more than 41% from their highs. Still, the stock still seems a bit rich at 27.3 times trailing P/E, as higher costs take a bite out of margins, while demand remains a giant question mark amid macro uncertainties.
The firm recently announced its expansion plans for Ontario. Though Magna is setting itself up for a great post-recession, I fear that the stock may have more room to the downside before, as the autos take a hit.
Timing markets and making a quick buck in the short term is very hard. Instead, investors should invest with the long run in mind. It’s this horizon where self-guided investors, like you and me, can have an edge, or, at the very least, aren’t in a spot to lose in the unforgiving game of near-term trading.
At this juncture, Dollarama stock seems like a prudent bet, while Magna may be a name to consider on a further pullback.