Young Tax-Free Savings Account (TFSA) investors shouldn’t look to avoid all risk at a moment like this. With bearish moves sweeping through broader markets following a quarter-point hike from the U.S. Federal Reserve, young investors must take smart, calculated risks, where there’s a potential for a solid reward.
Indeed, risk-taking seems really bad in a time like this. However, not all risks are created equally. If you can manage the risks that come your way and get more rewards potential for every bit of risk you look to bear with an investment, you can tilt the risk/reward trade-off in your favour.
With the market moving suddenly in both directions in response to macro events and U.S. bank failures, I’d argue that the odds are on the side of DIY investors who can think independently.
It takes more than just an independent thinker to outsmart Mr. Market en route to market-beating returns (or excess risk-adjusted returns). You need to stay calm when others around you are worried enough to hit “sell.” Further, you need to take bearish calls on Wall and Bay Street with a very fine grain of salt. Remember, it’s easy to make a bearish call when stocks have been stuck in a rut for well over a year.
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Sticking with stocks amid chaotic times
It’s times like this, when it seems hard to make money in stocks, when the long-term risk/reward scenario is actually attractive. When everyone is taking into account of the risks (perhaps overblowing them a bit), the investment environment may actually be less risky than average!
Indeed, this climate represents a stark contrast from the euphoric run-up we had in 2021. Now that many investors are in risk-off mode, I’d argue it’s smart to give the battered plays a second look. Now, it’s not just the beaten-down plays you should look to for a play on an economic rebound.
It may be too soon to focus on the post-recession world, when the recession hasn’t even arrived yet. With that, I’d argue it’s also a wise idea to stick with profitable companies that can continue sailing higher through a harsh macro.
In this piece, we’ll look at one stock that I believe is a great bet for the next decade.
Air Canada
Air Canada (TSX: AC) stock got crushed by the pandemic. And shares have still yet to gain meaningful ground, even though things have mostly returned back to normal, with travel feeling a nice bout of relief. As a recession hits, air travel demand could take another hit. As you may know, high operating expenses and sudden changes in consumer demand make the airlines tough to hold when the economy slips.
This recession may already be mostly priced in, though, especially if we’re in for a mild downturn or a softer-than-expected landing. At $18 and change per share, AC stock seems like a bet that could steadily fly higher over the next five to 10 years. After the recession passes, Air Canada could be right back to feeling the tailwind of recovering air travel demand again.
Though the fourth quarter saw a nice jump in air travel, investors still seem too concerned with headwinds and their potential impact on coming quarters.
At 0.39 times sales, AC stock is an intriguing name for young TFSA investors seeking deep value and upside over the next decade.
