In the midst of a bear market, the bull is never as far as we think it is. Indeed, we’ve grown so used to markets being biased to the downside for around a year now. As the latest market rally falters, questions linger as to just how much longer the bear will be in control before the next bull market has a chance to kick things off. For now, it’s a battle between the bulls and the bears, with no clear winner. Indeed, it’s too early to tell when the bull will make its return. Regardless, investors should stay invested amid bearish conditions, so they’re ready to run with the bull once the gate is ready to open.
Despite more than a year of choppiness, Canadian investors who’ve stayed mostly with TSX stocks have probably found they’ve fared far better than most other investors who may have overweighted U.S. tech plays. With rates on the rise, the promising tech plays that could only go higher are now names that can’t seem to catch a break.
Eventually, the U.S. Federal Reserve will pivot. When the time comes, tech stocks will outpace their value and dividend-heavy counterparts. Until then, there may be another steep leg lower, as the past two months of relief gains look to be clawed back by Mr. Market.
Personally, I think it’s too early to go bargain hunting in the more speculative corners of the market. There are ways to make money in this market that won’t keep you up at night. Specifically, TSX stocks with reasonable valuations and solid dividend-growth profiles look ripe for picking right here, right now.
In this piece, we’ll consider one cheap bank stock in Scotiabank (TSX:BNS) and a battered tech play in Shopify (TSX:SHOP). Both stocks seem overly punished and ready to move higher once the next bull market comes knocking.
Scotiabank
Scotiabank stock is in a brutal bear market, now down around 24% from its all-time high just north of $93 per share. Indeed, recession fears have weighed down on Canada’s most international bank.
As you may know, emerging markets tend to take larger hits to the chin when global downturns take hold. Regardless, I’m a firm believer that investors should seek to diversify their portfolios geographically for superior growth prospects. After such a bearish slide, I think BNS stock makes for one of the cheapest and highest-quality ways to gain exposure to the Latin American region.
Scotiabank has an absurdly low 8.9 times trailing price to earnings (P/E) and a 5.8% dividend yield. Investors will get paid juicy payouts to wait for the tides to turn. Even if the worst of loan losses has yet to hit, the next bull market could be very kind to the banks in the early stages.
Finally, Scotiabank is embracing tech, with a hybrid robo-advisor service that allows clients to get the best of both worlds via its Advice+ platform.
Shopify
Shopify is an e-commerce giant that’s roared out of the gate so far this year. Even after the last week’s ugly 7% slide, SHOP shares remain up 14% year to date. Negative momentum may have turned in a hurry, with shares now off more than 22% from their 2023 highs. Still, I view the dip more as a buying opportunity than a sign to get out.
DA Davidson recently praised Shopify for its total addressable market that’s “nearly boundless.” Undoubtedly, Shopify is still in growth mode, even amid macro pressures. The biggest thing that’s changed in the past year is the valuation. At 9.5 times price to sales, you’re getting a growth gem at a magnificent discount, in my books.
