TFSA (Tax-Free Savings Account) investors should be ready to deal with what’s likely to be a choppy rest of the year. Indeed, the Bank of Canada is pulling back on its rate hikes, while the Federal Reserve seems more than willing to embrace a few more hikes to ensure inflation doesn’t have a chance to linger for longer.
Indeed, the Fed may be in a spot to break things (just look to the failure of a top Silicon Valley-based bank). Regional bank stocks are under pressure, and there’s some concern that further rate hikes could break even more things. For now, it’s a tough time to put your latest TFSA contribution ($6,500 for this year) to work, even in the “safer” stocks with historically low valuation metrics.
TFSA investors: Beating the bear market is difficult but very much possible
Nobody knows if a couple more rate hikes will pave the way for new systemic risks not on our radar. Regardless, I think TFSA investors should pay less attention to the Fed. Based on inflation data and Fed speak, markets are sure to overreact to good or bad news. As the market pendulum swings in both directions, it’s the job of TFSA investors to be ready to buy stocks on their radars while they’re temporarily priced at a steeper discount to intrinsic value.
Indeed, great investors need to go against conventional wisdom and form their own opinions that other market participants would not even think to make. Undoubtedly, beating the market is hard if you can’t spot Mr. Market’s moments of inefficiency. Further, you’ve also got to be ready to act when Mr. Market fumbles the ball. This isn’t so easy when everyone around you is incredibly nervous.
CN Rail stock: Value in plain sight
As banks fuel more volatility, consider CN Rail (TSX:CNR) as a blue-chip gem to consider while it’s weighed down by broader market factors. Indeed, CN Rail is a wide-moat railway that many Canadians likely already own either directly or through a mutual fund. It’s one of Canada’s largest companies and it’s also one of its best long-term performers.
With a Canadian recession around the corner, rails will feel the pressure. However, it’s notable that CNR stock has held its own rather well in prior recessions, despite its economic sensitivity. Smart investors know that CN Rail has a huge moat protecting its operating cash flows. And amid inflation, it’s tough to stack up against the firm’s pricing power. With few rivals and the expertise to move goods across long distances safely, CN Rail calls the shots, even when times are tougher, and everything is getting pricier.
After a turbulent past few weeks, I view CN Rail stock as value hiding in plain sight. The $106.8 billion behemoth may be on the radar of many. But as other TFSA investors “hold off” amid volatility, I see a chance for disciplined long-term thinkers to jump in at today’s reasonable levels.
Bottom line for TFSA investors
At 21.34 times trailing price to earnings, CN Rail is pretty much in line with historical averages. Given the smart, new chief executive officer, Tracy Robinson, and the firm’s resilience through difficult times, it’s arguable CN Rail stock deserves a heftier premium. For now, I view the 8% correction in the stock as just a bump in the road for a wonderful company that will make it through this period of turbulence.
