Don’t let the hot start to the S&P 500 or Nasdaq 100 fool (lower-case f) you; there’s still value out there, and you don’t really need to look too far. Stop me if you’ve heard this one before: this market rally is quite narrow, with just a handful of winners propping up the American averages (specifically the Nasdaq).
Undoubtedly, market recoveries tend to see the relief gains concentrated in one segment of the market.
Only time will tell what the second half brings for investors. Those betting on value names may have a solid risk/reward scenario, as the market begins showing signs of broadening out. If the relative first-half laggards can’t catch up, though, we may see a cooling off in some of the pricier names that have done nothing but rocket higher of late.
Outside of tech, stocks actually look cheap
Although I think it’s far too premature to be talking market “bubbles,” even after a handful of tech stocks skyrocketed to new all-time highs in recent months. Unlike the 2000 dot-com bust, some of the major winners have real earnings and, more importantly, a realistic means to capture a big chunk of a swelling total addressable market (TAM).
Just because there’s no sector-wide or market-wide bubble does not mean we’re immune to bumps in the road, however. You should always be ready to deal with a horrified Mr. Market who takes a 180-degree sentiment reversal for no good reason! He acts in erratic ways, and it’s those investors who can catch him off guard that can potentially capture stocks at hefty discounts.
In this piece, we’ll look at Air Canada (TSX:AC) and goeasy (TSX:GSY), two intriguing value plays that I think may still be underpriced by markets.
Air Canada
Air Canada is finally starting to ascend again after years of turbulence (sorry for the pun!). Shares are up more than 30% year to date. Despite the hot surge, AC stock is still off more than 50% from its all-time high hit in early 2020.
Indeed, Air Canada stood out as one of the biggest losers from the coronavirus crisis. More than three years later and the stock has still yet to recover. Though I think it could take more than five years to see new all-time highs, I view AC stock as a relative bargain that could reward investors handsomely for taking on the risks.
As the recession moves in, Air Canada could face more sales volatility. Still, one has to imagine a lot of such recession headwinds are already baked in.
goeasy
goeasy is an alternative lender that boomed back in late 2020 and early 2021, when consumers were eager to fill up their shopping carts. Eventually, consumers needed to pull back on spending and pay their dues.
Though the strongest tailwinds in alternative lending are mostly over, I still think there’s value to be had in GSY stock on the dip. The stock has already shed over 47% of its value. And if a recession does prove short-lived, consumers may be eager to borrow to finance new purchases again.
With all the cutting-edge tech hardware and first-time millennial homebuyers in need of furnishings to hit the markets over the next decade, I’d not be surprised if goeasy experiences another surge at some point down the line. For now, shares are cheap at 11.4 times trailing price to earnings, or 7.9 times forward price to earnings.
