With markets in full-on rally mode since bottoming out late last year, the bulls are finally having their moment to shine. As most others run with the bulls in tech, it may seem wise to follow the lead. After all, the biggest gains tend to be had in the recoveries from the depths of prior crashes or bear markets.
There’s no question that a lot of the low-hanging fruit has already been grabbed. Regardless, there’s always value (in almost any market) for those looking to conduct a search. Today, investors are all about AI and other emerging technologies (think the metaverse and “spatial computing”).
As valuations swell in top AI stocks, some may tout the start of some sort of bubble. With rates are high as they are, it seems like tech is defying the laws of gravity. In any case, investors need not participate in the hot trend of 2023 if they’re not comfortable paying the now-swollen price of admission.
In this piece, we’ll rotate back to some cheap stocks that could be in for a nice move higher if the broader stock market rally broadens out going into the second half.
BCE
BCE (TSX:BCE) remains a long-term hold due to its beefy dividend, which currently yields 6.3%. The stock has been under pressure for more than a year now. And though the economic climate could bring forth another leg lower, I find the dividend as one of the biggest reasons to buy any steep plunge in the stock.
Only time will tell if the yield hits 6.5-7% again. If it does, one has to imagine that a lot of passive-income investors will be willing to give BCE the benefit of the doubt, even as a Canadian recession takes its toll on quarterly earnings.
It’s not just the dividend that I like about BCE, it’s the 19.1 times forward price-to-earnings (P/E) multiple. Sure, BCE isn’t the cheapest telecom stock, but it’s a great deal if you value yield. Few dividends above 6% seem more secure than that of BCE’s. So, rather than look to get in and out of the stock as a trade, look to lock in a yield and average down on further weakness to “average up” your principal’s yield.
Canadian Tire
Canadian Tire (TSX:CTC.A) stock has slowly deflated since peaking back in 2021. Though 2023 has seen shares recover meaningful ground, the stock remains a relative bargain at 11.38 times trailing P/E. Further, the 4.12% dividend yield looks safe and poised for continued growth over the next few years.
As recession and inflation weigh, Canadian Tire could be in for a doozy, as consumers put their wallets away. Further, the financial business could be up against it if a recession proves rockier than the pundits expect. In any case, I think there’s upside in the name if things go right for a change.
Canadian Tire has been through some tough environments (think the pandemic lockdown days). And management has done a respectable job of averting a disaster. A 2023 or 2024 recession is likely to be mild. And after a 2022 selloff, it seems like most of the band-aid has already been ripped off! For value hunters, that’s a good thing.
