The broader markets have been off to a robust start to the year. May 2023 could bring forth more choppiness as we move through the latest earnings season. There are bound to be big hits and misses. But TFSA investors shouldn’t make too much of near-term fluctuations as firms look to push through another haze of headwinds.
In this piece, we’ll have a closer look at two names that may be worth checking out in May, even as others around you look to take a bit of profit off the table. Undoubtedly, a 9% rally in just four months isn’t at all sustainable. However, given the magnitude of the 2022 pullback, I’d argue that recent gains aren’t necessarily destined to be surrendered back to Mr. Market.
Valuations seem pretty tame today. And though bargains aren’t as abundant today as they were during the fourth quarter of 2022, picky TFSA investors may still be able to get a terrific value today.
So, rather than chasing the biggest winners of 2023 thus far, I’d look for the names that may not have participated in the relief run but may deserve to as their quarters continue to hold up in the face of economic uncertainties.
SmartCentres REIT (TSX: SRU.UN) and Restaurant Brands International (TSX: QSR) stand out as compelling value plays with juicy dividend yields and a pathway higher.
TFSA top pick #1: SmartCentres REIT
SmartCentres REIT is a Canadian retail-focused REIT that currently has a 7.07% distribution yield. Indeed, the yield is the star of the show right now. It’s swollen after a bearish plunge of more than 21%. Undoubtedly, higher rates and recession fears have taken a bite out of the valuations of Canadian REITs across the board. As inflation falls below 4% and central banks have room to bring rates back down to Earth a bit, I think rate-hit REITs like Smart could be in for a considerable amount of relief over the next 18 months.
It’s not just a turning macro environment that has me bullish on Smart. The REIT’s Walmart (NYSE:WMT) anchor, I believe, will come in handy when economic tides go out as they did during the early days of 2020. I think the market’s undervaluing SmartCentres and the aura of stability that a well-run, grocery-heavy retailer like Walmart can provide.
Today, shares are at new 52-week lows of $26 and change per share. Though I have no idea when the name will bottom, I am a fan of the payout and the trajectory from here.
TFSA top pick #2: Restaurant Brands International
Restaurant Brands International stock soared over 53% off its 2022 lows. After years of trading in the gutter, I think QSR stock has the legs to make a new all-time high on the back of strength in Burger King.
In prior pieces, I highlighted the big changes coming to Burger King. Though it’s only been seven (or so) months since the firm announced its turnaround strategy, the efforts are already starting to pay off.
Reportedly, Burger King is selling a ton of whoppers in the U.S. market. With a new logo, a brilliant manager in Patrick Doyle, a “Whopper Whopper” jingle that’s likely stuck in the heads of many folks, and a bit of momentum at its back, I think QSR stock has suddenly gone from industry dog to one of the hottest (and perhaps cheapest) plays in the space.
At 21.5 times trailing price-to-earnings, with a 3.11% yield, Restaurant Brands looks like a wonderful deal in a recession-resilient industry.
