Building a winning TFSA (Tax-Free Savings Account) portfolio doesn’t have to be a difficult task, as long as you have a long-term time horizon and focus on the companies that you can fully understand. After all, it’s easy to be dragged into the latest hot technological trend.
A few years ago, it was all about cryptocurrencies and the blockchain. These days, the hype has shifted to AI. Though I do not view the rise of AI as a bubble, I do think investors should have a good grasp of a technology and its longer-term growth prospects.
Don’t feel the need to have a front-row seat to the hottest trends
Like during the 2000 tech bust, many high-flying tech firms that lacked on the profits front took a hit to the chin in 2022. Undoubtedly, the 2020–21 boom and 2022 bust should be a lesson that it’s never a good idea to chase where the heat is in the markets. Things can cool off in a hurry and if you’re not out of a trade at the right time (this is really hard to do unless you’re a seasoned trader), the penalties could be stiff.
Only time will tell if AI is the start of the next bubbly run-up in the tech space. Valuations, as a whole, still don’t seem nearly as alarming as they did in the back half of 2021. As almost every company looks to use the word “AI” ad nauseam in their conference calls and investor presentations, it’s a good idea to take every piece of hype-driving news with a grain of salt. There will be winners and losers from the rise of generative AI. And it’s not crystal clear which firms are destined to profit profoundly from the rise of AI.
What trumps trends? Low valuations.
At the end of the day, you must resist the urge to neglect valuation. If you pay too high a price, even the most intriguing technology may not be able to save you from losing a considerable sum over a short period of time.
In this piece, we’ll check in with one tech firm Shopify (TSX:SHOP), and a top alternative asset manager Brookfield Corp. (TSX:BN). Shopify is a firm that could have a lot to gain from the AI race as it looks to widen its moat around its part of the e-commerce market. Meanwhile, Brookfield is an easier-to-understand, cash-flow-generator.
Shopify
Shopify is an e-commerce firm that’s really gained momentum lately, thanks to a solid earnings result and more clarity on the firm’s trajectory from here. Indeed, Shopify was one of the names crushed in the sell-off of 2022. The company overhired a few years ago. These days, the firm has been trimming its workforce, like so many other tech firms.
Shopify’s more than 80% fall from peak to trough isn’t the beginning of the end, though. I view the recent relief rally in Shopify stock as warranted. Further, I think Shopify is one of the many tech-savvy firms that can tap into the power of generative AI to further improve its impressive platform.
Brookfield Corp.
Brookfield Corp. has been under considerable pressure for more than a year now. Shares are off around 32% from their all-time highs just shy of $63 per share. Indeed, the broader basket of asset managers have been weighed down of late. Still, longer-term TFSA investors may wish to give the sell-off a look if they seek exposure to “real” cash-flow-generative assets. As rates stay elevated while recession moves in, I’d have a serious look at BN stock should shares fall below the $40 per-share mark.
Headwinds facing the asset managers won’t last forever. As valuations contract across the board, I’d look for Brookfield Corp. to take advantage of M&A opportunities as they come to be. Having an impressive liquidity position is important these days.
