The first-half bull market surge in the American stock market has been quite pronounced. Though it remains a mystery as to what will lead and what will drag as the second half begins next week, I think long-term investors should stay the course and insist on getting the most value from every stock their buy.
Undoubtedly, value investing can result in impressive returns over time. But, perhaps more importantly, sticking with a value approach can keep you out of trouble when Mr. Market gets a tad too ahead of himself regarding certain names driven higher by hot trends.
These days, it’s all about artificial intelligence (AI). And though I view AI as a driver of the fourth industrial revolution, you must be careful how you play the trend. Simply betting on the hot stocks that everyone else is targeting can cause you to lose sight of valuation, as you buy with the assumption that someone else will be willing to pay more in a week or so from now.
In this piece, we’ll look at two impressive stocks that offer good value and potential upside for the second half of 2023. Although they may be lacking in AI upside, they do seem to have a lot to gain if a recession can be avoided.
Bank of Nova Scotia
First up, we have Bank of Nova Scotia (TSX: BNS), an underrated Canadian bank with exposure to the fast-growing Latin American (Lat Am) region. Emerging markets can help you get on the pathway to greater growth but at the cost of higher risk. Fortunately, Bank of Nova Scotia’s managers have done a pretty good job of managing risks in such markets.
The stock is down more than 30% from its all-time high of around $94 per share hit back in 2022. With a 9.56 times trailing price-to-earnings multiple and a massive 6.7% dividend yield, BNS stock stands out as a bank stock that’s perfect for long-term investors seeking income and exposure beyond Canada’s domestic banking scene.
Of course, a recession could continue to drag shares of BNS toward their 2020 lows. If the economy can land on its feet, though, I’d argue BNS stock could be a laggard turned leader in quite a hurry.
NFI Group
NFI Group (TSX: NFI) is a Canadian maker of buses, with some skin in the electric vehicle game. The stock has been on an abysmal decline over the years, even before recession risks became apparent. The stock is down more than 82% from its all-time high of almost $60 hit back in 2018. It’s been a long, lengthy drop. But I think the $821 million industrial can begin to recover again once the worst recession headwinds pass.
Recently, the company inked a deal with the Toronto Transit Commission to build up to 621 electric buses over a five-year span. I think the deal could be the first of many, as localities look to electrify their bus fleets. Undoubtedly, NFI is a rocky ride, but one with considerable upside if things go right for a change and the bull market broadens out a bit.
Unless you’re a patient deep-value investor, I’d be careful with the name, given its propensity to swing wildly.
