Amid high levels of inflation, it seems like planned retirements are getting a tad out of reach. Stock and bond market volatility from last year may have caused some to push out their retirement dates. As inflation winds down and the new bull market looks to lead stocks to levels not seen since last summer, RRSP (Registered Retirement Savings Plan) investors may wish to consider some of the forgotten value names that could help extend the market’s year-to-date recovery.
Though it’s too late to tell if the tables have turned, I’d argue that there’s never been a better time to add to your RRSP retirement fund while valuations in select names are at modest levels. Though stocks have had quite a run since the start of the year, a small basket (mostly tech) is responsible for dragging the U.S. averages out of bear market territory.
RRSP investors: Don’t chase hot sectors, chase neglected ones that are rich with value
Only time will tell which sector will shine next, or if recent gains in the tech scene are sustainable. Regardless, value investors willing to face a potential recession may have the most to gain. It took a brave contrarian to reach for the bruised tech stocks back in October and November of last year. When most lost hope in tech, as interest rates climbed, it turned out to be the best time to buy.
In this piece, we’ll look at two hard-hit TSX stocks that recently made new 52-week lows. With a recession likely just a few months (or quarters) away, each stock seems to be an untimely play lacking in catalysts. Still, with modest expectations and so much recession risk already considered, I’d argue that the following out-of-favour names are worth stashing on your RRSP radar.
Consider beaten-down auto-parts maker Magna International (TSX: MG) and trucking firm TFI International (TSX: TFII).
Magna International
It’s been a rough ride for Magna stock over the past few years, with shares off around 44% from its all-time highs. As you’d imagine, there isn’t that much enthusiasm for a cyclical company in the face of a rate-driven downturn. Still, I think many investors are ignoring progress made in recent quarters, even given considerable macro headwinds.
In the latest quarter, Magna saw its margins take a hit. However, revenue growth was on the right track, as management hiked its guidance slightly. The company is looking for sales in the $40.2-$41.8 billion range. As industry headwinds peak and pass, I’d look to Magna as an economic-recovery stock with room to run.
The stock trades at 10.7 times forward price-to-earnings (P/E), with a 3.48% dividend yield. Not at all a high price to pay for such a reliable dividend.
TFI International
TFI is another stock that’s up just 2% year to date. After slipping 19% from its March 2023 highs, I view the less-than-load transportation firm as a great dip buy before focus shifts from recession to recovery. Just as quickly as the bear turned into a bull, we could see sentiment gradually improve well before the results themselves do.
The stock trades at around 15.2 times forward price-to-earnings, with a 1.29% dividend yield. As transport trends return to normal, TFI stands out as a name that could find itself right back to making new highs on a consistent basis.
The past three years have been very choppy. But the five-year trajectory still looks impressive. My takeaway? TFI is a cyclical value play that offers a satisfactory risk/reward tradeoff for investors looking for a front-row seat to a new bull market.
