Broader markets were off to the races this week, as investors moved past recent bank woes faced by a few select regional banks south of the border. Indeed, the failure of Silicon Valley Bank sent ripples of fear through the broader financial scene earlier this month.
With backstops in place and regulations likely coming to prevent another liquidity issue from occurring, it seems like markets are finally finding a sense of calm. Indeed, a few bank failures may have an unintended positive side effect in that the Federal Reserve may now have greater flexibility to pause, even cut rates, in a year or so from now.
As the Fed follows in the trail of the Bank of Canada, which hit the pause button with rates, there’s a good chance the loonie can catch up to the likes of the U.S. dollar, which has been relatively robust of late. Indeed, markets ended March with strength, and it could carry over into April 2023 and the second quarter.
A spring in the Canadian stock market’s step going into April
In this piece, we’ll consider one Canadian stock I’d look to track down as April lands, the snow melts, and the spring season looks to give markets a bit of a jolt.
We’ve had quite the relief rally this year. Even though a lot of gains were given back in February and part of March, I think long-term investors should not hesitate to put money into attractively valued stocks, even as we encounter a recession.
Remember, if a recession is already baked in, stocks could have the means to move higher if the recession is shorter-lived and less severe than expected. The 2020 recession was very short-lived, and markets were right back to normal in just months’ time.
Can the same be in the cards for 2023? It’s impossible to tell. Though I like the aura of caution in the air. When risks are perceived as high are when the risk/reward scenario tends to be attractive to those willing to brave uncomfortable conditions. Currently, I’m watching CN Rail (TSX: CNR) closely.
CN Rail: I’m so tempted to buy right now
CN Rail is down just shy of 10% from its all-time high. The rail play has really dragged its feet in recent weeks and hasn’t really participated in the last week of recovery gains. A recession will impact the rails, but I think markets are underestimating CN’s abilities to drive operating efficiencies.
With Chief Executive Officer Tracy Robinson at the helm, I think CN could become the best version of itself that investors have seen in a while. Making prudent investments in the right spots and enhancing margins could be key to outpacing rail rivals again.
Recession or not, I like the track that CN Rail is on right now. Further, the valuation is not excessive either, with shares going for 19.7 times forward price to earnings. Though shares aren’t a steal right here, I am enthused by the type of growth the firm could command, as it helps pull Canada’s economy out of what could be a short-term funk.
The 2.02% dividend yield is also bountiful and subject to consistent growth over time. Indeed, CN Rail is a dividend-growth hero. And whenever it’s knocked down, long-term investors should be happy to back up the truck.
