Chasing returns is never a good idea, especially if you’re a new investor who doesn’t fully have a grasp of risk and reward. Indeed, it can be easy to overestimate your tolerance for risk. When the market waters get stormy, and the bear market rears its ugly head after a lengthy bull market, things can get scary really fast. And a lot of beginner investors may stand to get startled. In markets, it can be easy to forget what it’s like for markets to go down when stocks are in a red-hot bull run.
On the flip side, it can be hard to remember what it’s like to actually make money in stocks when the bear is in full control, and nobody out there can find anything to be optimistic about. Last year, it was easy to give up on stocks. They tended to only crumble lower, as the Federal Reserve and Bank of Canada continued applying the pressure of interest rate hikes.
A recession may still be around the corner
Further, everyone seemed to be prepping for some sort of economic recession. It may be one of the most expected recessions in recent memory. But because it was on almost everyone’s radar, it may fail to materialize, at least in the U.S. market. Here in Canada, a mild and short-lived contraction seems likely, as the Bank of Canada puts the finishing touches with its rate hikes, and as the Fed hits the pause button, at least for the time being.
As investors grow optimistic over the new bull, it may be wise to take a tiny bit of profit off the table of your biggest winners, with the intention of putting it in some of the relative laggards in the value camp. Indeed, a narrow rally may be the precursor to a broader one.
From here, the narrow group of winners could continue to widen the gap or endure some sort of near-term correction. Personally, I wouldn’t want to be caught on the receiving end of a pullback. Instead, I’d look to the value plays that may not be getting enough attention from the headlines.
In this piece, we’ll look at two value plays in the mid-cap space that have considerable room to run, at least according to some analysts.
Cargojet
Cargojet (TSX:CJT) used to be a high-flying way to play strength in e-commerce. Now that consumer spending is poised to grind lower in the face of a recession, Cargojet stock has faced a bit of a nosedive. Today, the stock is below $100 per share, hitting a new low not seen in around three years.
The company came up short of expectations in the latest (first) quarter, with $0.97 earnings per share — shy of the $1.03 estimate. At around 1.8 times price to sales and four times price to cash flow, CJT now looks like a deep-value stock with secular tailwinds that could kick in once the recession ends and people are ready to start ordering online again.
Spin Master
Spin Master (TSX:TOY) is another value-friendly stock that’s worth stashing on the radar. The stock trades at around 13.2 times trailing price to earnings and has been a rather ugly name to hang onto.
The toymaker has fallen at the hands of macro headwinds. And heading into the holiday season, expectations seem quite modest. Of course, even a hit new toy may not be enough to lift Spin out of its tailspin if inflation-hit consumers have to keep trimming their budgets.
Spin may be a discretionary play, but it’s one that could take meaningful share in the toy scene if it’s able to keep innovating while making strategic deals as they arise. In the last quarter, inventories were quite swollen. But I don’t expect this will remain an issue for too long. The economy will normalize and so too will supply and demand.
