The S&P 500 is flirting with bull market territory (that’s a 20% upward move off lows). It seems like the recession woes and consumer-spending worries are now mostly behind us, even though a recession has yet to hit. Going into the second half, a recession could happen in Canada, and perhaps even the U.S. That said, it could go down in the history books as one of the most anticipated economic downturns in decades.
Let’s not forget that 2022 was a punishing year for new investors. Even if a recession turns out to be a rockier ride than central banks expect, I’m not so sure investors will be in for steep double-digit declines from here. Like it or not, the market averages look more or less fairly valued.
That doesn’t mean that there are zero bargains to be had, however. Whenever you’ve got a fair or frothy market, DIY investors need to be a bit more picky when it comes to the names they choose to buy.
Value investors should be more selective as the market rally moves forward
The AI stocks that surged in recent months have shown subtle signs of cooling. Whether or not they have a front-row seat to the market’s next correction (some big-name market strategists are calling for a correction) remains to be seen. Regardless, I do think a more value-conscious approach could help investors weather any small rough patches between now and year’s end.
Without further ado, let’s have a look at two neglected value names that may be able to buck the trend should a correction be in store in the second half.
Even if we’re in for a bit more than a correction (more than a 10% dip in the market averages), the following names seem so sold off that they may mostly be spared from any broader market sell-off. That’s the beauty of having a wide margin of safety. While you can still take a hit, your odds of suffering a substantial hit can be far less than that of the averages.
Brookfield investors who loved the Brookfield Asset Management (or BAM.A) of old will love Brookfield Corp. The company still offers exposure to those magnificent cash-generating alternative assets. Although Brookfield Asset Management (TSX:BAM) can prove a more bountiful play over time, I think it’s really tough to stack up against the calibre of physical assets you’re getting from Brookfield Corp.
Real cash-generating assets could continue to be in high demand over the next several decades. And both Brookfield stocks are bound to enjoy the tailwind.
For now, though, Brookfield is feeling some headwinds as the risk of recession rises. The stock is down around 32% from its high and could make for a fantastic addition to any value investors’ portfolio at this juncture.
Algonquin Power & Utilities
Algonquin is a fallen passive income star that unfortunately had to reduce its dividend amid considerable challenges. Today, the stock sports a sustainable 5.04% dividend yield. Though shares are still well off (around 48%) their 2021 highs, recent momentum in the name is tough to ignore.
The stock has surged more than 26% since its December lows. While I don’t think the rally will bring shares back to new highs, I’d certainly not be shocked if the stock ends up back in the $15 range over the next 18 months.
The $8 billion renewable power firm has serious challenges. But with depressed estimates and the long-term secular tailwind in the energy transition, I do think the worst is over for AQN stock. Its reputation as a dividend stud will be tarnished. However, I do view it as a very compelling low-beta (meaning lower correlation to the market averages) bounce-back candidate for investors who still have faith in the firm.