Move Over Shopify: There’s a New Hot Stock in Town!

Fairfax Financial Holdings (TSX:FFH) stock is the new Canadian momentum play in town, and it has room to run in 2023!

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Shopify (TSX:SHOP) stock may have shed more than 80% of its value amid the brutal tech selloff. Still, the stock remains up considerably over the past five years.

Only time will tell what’s up next for the e-commerce firm, as it grapples with a new slate of macro headwinds. Regardless, Shopify stock’s red-hot days are over. And as rates continue to stay high, it’s unclear if Shopify can regain its momentum. Indeed, rate cuts may be possible in 2024. But until then, Shopify needs to stay on its toes to stay innovative and keep rivals at bay.

As Shopify stock cools down after a strong start to the year, a new list of TSX momentum plays is in the driver’s seat. Unlike Shopify and other tech stocks that enjoyed a euphoric and unsustainable rise through 2021, the following momentum play still reeks of value.

Consider insurance and investment holding company Fairfax Financial Holdings (TSX:FFH), which continues to be a hot performer, up more than 9% year to date, even after last week’s slight slip, as bank stocks sent shockwaves of worry through the broader stock market.

Over the past year, gains in shares of Fairfax Financial Holdings are even more impressive. The stock is up just shy of 50%, thanks in part to improving quarterly results. Indeed, Prem Watsa and Fairfax have outperformed in past economic recessions — most notably, the Great Financial Crisis of 2008.

With a 2023 recession likely ahead, I think Fairfax is, once again, proving itself as a shining star in a gloomy economy.

Fairfax stock: The new TSX momentum stock in town

For years, Fairfax and its founder Prem Watsa have been in a slump. Since bottoming in 2020, it’s been a steady upward ride that’s rewarded investors who stayed patient with the firm, as its valuation multiples contracted to absurdly low depths.

Fresh off a new high, Fairfax stock isn’t the same bargain it was just a few years ago. Still, the name is certainly not too expensive. In fact, it’s arguably still a value play, with a modest 14.9 times trailing price-to-earnings multiple. The 1.46% dividend yield is also quite bountiful.

As the recession rolls in, I think more of the same is in the books for Fairfax. The company’s fourth-quarter results saw investment losses, as you’d expect from any investment holding firm. Still, the company managed to post strong underwriting performance. Core insurance and reinsurance was a major strong point. As markets settle and stocks find their footing again, Fairfax stock could face the perfect storm of tailwinds. And it’s tough to tell how much higher the name can be propelled, as Watsa makes his long-awaited comeback.

In prior pieces, I’ve urged investors to stick with Watsa amid FFH stock’s slump. Even after a historic run, I remain bullish on the name. Fairfax stands out as a winner that can keep on winning even in a harder economy.

Watsa is a magnificent value investor with a knack for doing well when the economy hits road bumps. With that in mind, I’d continue to give the firm the benefit of the doubt, as it looks to move higher under its own power.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool has a disclosure policy.

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