Tax-Free Savings Account (TFSA) investors have a lot of reasons to take a raincheck on the potential bargains put forth by Mr. Market in recent quarters. There’s a lot of concern, and many market strategists don’t expect much in the way of gains to be had from here. Sure, big names are saying there could be downside in the cards, as the U.S. Federal Reserve keeps the rate hikes coming. That said, there are also other voices on the Street that think gains can be had, even amid increasingly challenging times.
It’s not just higher rates that firms will have to grapple with. The impact of rates is starting to be felt. The recent downfall of SVB (Silicon Valley Bank) was one of the dominoes to fall as a result of unprecedented rate increases. Now, some may think the Fed will reconsider its double (50-basis-point, or bps) hike at the Fed meeting later this month. Indeed, some predict a 25-bps hike, while others think no hike will happen due to the shocker of SVB and its impact.
Either way, I think investors shouldn’t panic sell at this juncture, even if a 50-bps hike is still in the books. If anything, a lack of hikes in the next meeting could signal things are uglier than they are, at least with regards to some of the banks. The last thing the Fed wants is to replace high inflation with a financial crisis, which may not even guarantee an effective alleviation of inflation.
In any case, TFSA investors should stick with what they know best: the companies on their radars.
Sure, rates and bank flops will have an impact on a company under question. But it’s your job to evaluate the extent of such risks and whether or not recent price action is justified. When it comes to most stocks, I’d argue recent negativity is overblown a bit.
Couche-Tard: What does SVB’s fall have to do with convenience stores?
Think of firms like Alimentation Couche-Tard (TSX:ATD), a steady convenience store giant and defensive earnings grower that took a hit last Friday. The stock is now off 5% from its weekly high in sympathy with the banks and other TSX stocks that were quick to retreat on news of SVB’s demise.
I think there are no reasons why Couche should have sold off so viciously. The company still has a magnificent balance sheet and some of the most durable operating cash flow streams in the Canadian consumer staple space. Further, Couche has managers that know how to make the most of turbulent times. If anything, recessions and downturns are where Couche can create the most value, as it leverages its strong financial flexibility.
Couche-Tard is always hungry for a deal. These days, deals seem to be getting better by the day. In due time, Couche-Tard will get active again. Until then, look for Couche-Tard to slowly and steadily continue making small steps to improve its position on the other side of the looming recession.
Bank failures are scary. SVB’s fall may be giving many bad memories of the events that unfolded around 15 years ago. A softer landing may seem further out of reach after last week’s events. Regardless, Couche-Tard remains a wonderful business that stands to be little affected by investors banking on pain in the banking industry.