It’s tough to be a new Tax-Free Savings Account (TFSA) investor these days, with considerable volatility and recession fears. Indeed, the “new normal” for markets has been wild swings in both directions, with a good mix of bullishness and bearishness.
As market sentiment continues swinging to both bearish and bullish extremes, TFSA investors would be wise to stay calm and consider how their actions will impact their long-term investment goals. Indeed, whenever making moves (buys or sells), it’s very wise to keep one’s emotions in check and consider the big picture.
TFSA investors: Gains in a recession year are still possible!
With a recession coming in at full speed, TFSA investors should ask themselves if there are any stocks of companies they’d be glad they bought amid the carnage for the next five, 10, or 15 years. It’s these stocks that investors should consider picking up in moments that the market overreacts to the downside. Recessions are scary. But just because 2023 holds one does not mean the rest of the year will see no gains, only losses.
For investors willing to do the homework, I believe there are great opportunities to make money, even in another red year!
Magna International (TSX:MG) and Canadian Tire (TSX:CTC.A) are two TSX stocks that I believe have more than just a “mild” recession baked in at today’s multiples. Though a recession could prove more severe and warrant more downside, I think that the risk/reward scenario over the long term (think +10 years) looks favourable, perhaps the most favourable since the depths of 2020.
Let’s have a closer look at the names.
Magna is an auto-part maker that tends to boom when times are good and go bust at the first signs of economic trouble. Indeed, the auto market can go from white hot to ice cold in just a matter of months. After two years of being weighed down heavily by recession fears, I finally think Magna stock is in a good spot to deliver for investors.
There are still a few tough quarters to get through as the recession strikes. That said, I’m a fan of the long-term growth story and the swollen 3.45% dividend yield. Looking beyond the downturn, Magna could continue to be a major player that helps EV (electric vehicle) makers make the most of the electrification opportunity over the next decade.
A recession will diminish the EV tailwind. But probably not forever. As Magna slumps, I’d look to average into a position over time. If the dividend yield eclipses 4%, I’d be very interested.
Canadian Tire’s another discretionary firm that’s been hard hit of late. I think the well-run retailer has too much pessimism baked in. As a recession hits, the retail and financial business could both take a bit of a hit. Still, how much of the hit is already baked into the stock? I’d say a lot of it — perhaps even too much.
The stock trades at 10.1 times trailing price to earnings, with a 3.86% dividend yield. Shares are historically cheap, with a dividend yield that’s skewing towards the high end. Like Magna, I’d watch for the yield to break 4% before punching my ticket into the name.
After a 25% bounce off bottom, I’d wait for a pullback to strike at some point over the next few months. Once recession fears are back in high gear, TFSA investors will have a chance to get a great deal in an iconic firm.