The market rally has begun to cool off in recent weeks. Even as stocks begin to go sideways for the summer season, a certain class of high performers could continue to build on their recent strength. In this piece, we’ll look at two hot TSX stocks that may not see their “recovery modes” be derailed, even as the Canadian recession closes in.
Indeed, the recession may be just a quarter or so away. Though there’s a good chance it could be delayed to the end of the year or next year, beginner investors should stay calculated, so they can focus on the long haul. Indeed, there’s also a good chance a recession may never materialize. Though that’s always a possibility, investors should be prepared for any bumps in the road, including those not on our radars!
Without further ado, consider shares of Shopify (TSX: SHOP) and Air Canada (TSX: AC), which flew very high last week on the back of decent results. As the stocks of both battered firms look to sustain their recent upward moves, look for the previously forgotten names to become high-volume movers once again.
Let’s check in with the two names to see which may be a better fit for your long-term portfolio.
Shopify
Shopify is on quite a hot streak over the past three sessions. Even after rocketing more than 30% last week, shares ended Monday up nearly 4%. The stock is up nearly 37% in just three days. Undoubtedly, a pullback seems overdue, at least over the near term. Though the stock may be too hot to handle for many after a three-day surge, I think investors may wish to stash the name on their radars, as the stock looks to heat up and test the $100 level.
Ultimately, I think $100 is within reach. Whether this rally takes it there remains to be seen. Regardless, the same inhospitable environment seems to be in the cards. Rates are likely to stay high (maybe even creep a bit higher) and a recession could eat away at more retail sales. And, of course, inflation (the thorn in the sides of many) may still skew on the high side for at least another few quarters.
Despite these negatives, Shopify appears to be setting the stage for its own recovery. After another round of layoffs, Shopify is cutting costs while returning to its roots. Investors are encouraged. And they should be. Investors want to see margin improvement and more efficiency in this high-rate world. And Shopify seems to be delivering.
At 13.2 times price to sales, the stock is no longer a “steal,” but I think there’s room for additional multiple expansion, as investors brace for potentially better margins.
Air Canada
Air Canada has also been hot of late, surging 2.3% on Monday, adding to Friday’s astonishing session that saw the stock surge as high as around 12%. The company hiked its earnings outlook by $1 billion.
Despite recession fears, management is confident in its ability to improve as the travel demand continues its upswing. Only time will tell where the travel recovery goes from here. If there’s a shallow recession (that seems likeliest), Air Canada may have permission to fly much higher.
At 0.42 times price to sales, the stock seems way too cheap given the potential catalysts. Like it or not, AC stock is no longer in the no-fly zone! In fact, it may be the recovery stock to fly with over the next 18-24 months!
