It’s been a wild ride for TFSA (Tax-Free Savings Account) investors so far this year, with a barrage of U.S. bank failures dragging broader markets lower, while earnings (for the most part) haven’t been too dreadful given the slate of macro headwinds. Indeed, the choppy ride for the broad TSX Index is likely to keep on going through the year, as the country looks to fall into a recession.
Now, a recession doesn’t have to be a money-losing proposition that keeps you glued to the sidelines. Past recessions have seen markets take huge hits to the chin. But you have to remember that every recession is different. Arguably, there’s less of a “shock” factor compared to 2008, when the housing market fell off a steep cliff, or 2020, when the implications of pandemic lockdowns finally set in.
This time around, we’ve had ample time to brace ourselves for the headwinds to come. Even if the recession cuts deep, I still think prudent stockpickers insistent on value can move through the rest of the year with some gains intact.
Nobody knows which sector will be hot for the rest of 2023 (and 2024). Energy stocks were last year’s leaders. The first quarter was all about battered (and profitable) tech titans. As for the rest of 2023, it’s hard to say which areas of the market will shine brightest. Personally, I think you can’t go wrong with value and GARP (growth at a reasonable price) stocks, even with the scary recession ready to knock on the Canadian economy’s door in just months’ time!
TFSA stock pick #1: Shopify
First up, we have Canadian e-commerce king Shopify (TSX:SHOP). SHOP stock skyrocketed into the stratosphere (ending the day up more than 23%) on Thursday following the release of promising quarterly results and the announcement of a 20% workforce reduction. Shopify was hard hit by higher interest rates and a challenged consumer. The company has reacted quite well, though, in response to all the negativity.
The company is also selling its logistics operations. Undoubtedly, logistics is a very expensive and complicated place to be in. Shopify’s getting out of the game and will be able to narrow its focus on what it does best: providing wonderful tools to its merchants.
Investors love the moves. Shopify’s leaner today than it was many months ago. As the firm concentrates on cutting-edge technologies instead of trying to keep up with rivals on the fulfillment front, I do think Shopify can power much higher from here. Shopify’s a wonderful company, and it deserves an “A” grade for adapting to the tougher times!
TFSA stock pick #2: CP Rail
CP Rail (TSX:CP), or CP Rail Kansas City, is a compelling rail play with a long growth runway following its merger with Kansas City Southern. The deal was pricy, but it will pay off under the leadership of CEO Keith Creel. Creel is trained by the very best and likely to be very successful in unlocking value from its massive rail merger.
As the first railway to span the U.S., Mexico, and Canada, I’d look for CP to flex its network muscles in a major way. When it does, the firm looks equipped to take market share away from some of its incumbents.
At 26.5 times trailing price-to-earnings, the stock’s not cheap. But if you believe in management, I think CP is worth paying up for to stash at the core of your TFSA.