Shopify (TSX:SHOP) and TD Bank (TSX:TD) are two very popular Canadian stocks that have been through a lot in recent years. Indeed, the past year has been quite turbulent for shareholders in both firms.
As the winds of the recession begin to chill corporate earnings, questions linger as to whether the following battered TSX staples have what it takes to march higher. I think they do, especially given the next recession could come and go quite quickly. And just as quickly as a “soft” recession passes, inflation and interest rates may also be due to head south, perhaps at a quicker rate than expected over the next 12-18 months.
Inflation has already come down by quite a bit from its peak. However, it’s still not at ideal levels. It’s been far stickier than anyone would like. The fight against inflation isn’t over. In fact, it’s hard to tell when the rate hikes will reverse course. My bet is that the Bank of Canada will not back down until it can ensure it will win the fight against high inflation. Nobody knows better how difficult a foe inflation can be that the central bank.
Certainly, lower rates would benefit tech titans like Shopify and help ease its journey back to the triple-digit mark. Though I’m never a fan of buying a stock based on where one thinks rates or the economy are headed next, I think the risk/reward scenario in a name like Shopify makes a lot of sense for a new and young Tax-Free Savings Account (TFSA) investor whose number-one goal is to build wealth over a long-term investment horizon.
I’m sure you’ve heard this before, but young investors with horizons beyond five to 10 years can wait for sub-optimal stock purchases to recover. Of course, you must ensure you put in the homework first and get a good price to minimize the chances of taking a large hit to begin with.
Shopify stock
Shopify stock is starting to get a tad frothy again. Ever since the firm reported earnings, shares have been on a seemingly unstoppable run. Though shares retreated nearly 10% in May, the latest upside surge has propelled shares to 52-week highs (of around $85-$86) again.
The company realizes the headwinds that could further eat into growth. That’s why making a big push into the business of physical commerce. I must say I like point-of-sales services far better than logistics. Personally, I don’t think Shopify should have gotten into logistics to better put up a fight against its peers. The company realized its mistake and has since corrected it. That has many folks bullish on the stock going into the summer, even with the macro unknowns that lie ahead.
It’s hard to tell how high this current rally will take SHOP stock. If you’ve got TFSA cash to put to work, I’d look into buying a half or quarter position here. If shares slip below $75, perhaps buy another chunk of shares, as you gradually build your full position.
I think the path of least resistance is higher, though. Shopify is a great company, and it has a plan to become a growth king again.
TD Bank stock
TD Bank stock may be better for the value crowd out there, with its mere 10.1 times trailing price-to-earnings multiple and 4.85% dividend yield. Though shares have slipped to 52-week lows on two occasions this year, I find the low beta (0.84) to be compelling for those seeking to diversify. A lower beta means less correlation to the broader markets.
Of course, banks will always feel the recession moving in. That said, recoveries tend to be quite quick, rewarding dip buyers with quick gains and swollen yields. Like Shopify, I’d nibble my way into a position over the next year or so.
Better buy: Shopify or TD shares?
I like TD Bank stock better here, given its track record of prudent performance through thick and thin. As the economy skates on thin ice, I have confidence that TD can weather the storm. The valuation seems way too depressed after a turbulent first half of 2023.
