What an incredible first half of 2023 it’s been for investors who braved the selloff of 2022. Many of last year’s laggards have been leading the pack so far this year. Going into the second half, U.S. markets are coming in with quite a bit of momentum. The TSX Index may be in a spot to follow the lead, but unless energy, financials, and materials can pick up steam again, it seems doubtful that the TSX will have a shot at beating the S&P 500 from here.
Going into the second half, investors may be contemplating whether they should be putting new money on what has been working (the hot tech stocks in the United States), or shifting to neglected value names that may be in a spot to surge in price should recent market strength broaden out further.
It’s a tough call. Though the tech sector is getting frothy in some areas, I can’t say the hot run will end as painfully as it did in 2022. Indeed, mega-cap tech has led the way, thanks in part to their dominance in AI (artificial intelligence).
Though the mega caps aren’t bubbly, a strong argument could be made that they’re on the expensive side. The price-to-earnings (P/E) ratios are swollen. And if AI (and other trends) fail to deliver, a correction or bear market could easily be in the cards. Just don’t expect a repeat of the dot-com bust suffered around 23 years ago!
If you’re at all jittery about being late to the tech party, there’s no shame in sticking with “boring” stocks with multiples that aren’t swollen.
Consider shares of CN Rail (TSX:CNR), one transportation company that I expect could have some strong quarters in the books once macro headwinds begin to abate.
CN Rail
CN Rail is a tried and tested dividend-growth stock that can help you get wealthy slowly and steadily. The railways may be boring, but they have been proven money makers over long-term timeframes. Over the past five years, shares have returned just north of 36%. That’s decent, but not exactly applaud-worthy, especially compared to the high-flying AI plays south of the border.
The company brought on a new chief executive officer in the first quarter of 2022 to help CN Rail become the envy of the industry again. Over the past year and a half, shares have been stuck in a range, struggling to break past the $172 ceiling of resistance. Though the company has reported four straight earnings per share beats, investor enthusiasm has been quite muted, likely because of the looming recession.
Do note that markets are forward-looking, so once the post-recession rebound is apparent, it will likely be too late to get stocks at the greatest discounts. Heck, you may even have to pay a hefty premium by the time the coast is clear, and headlines shift from recession to rebound.
At writing, shares are fresh off a 10% correction. The stock trades at 19.43 times trailing P/E alongside a 2.04% dividend yield — not at all a high price to pay for such a wonderful business that’s likely to keep the dividend growth coming.
