Fellow Fools,
We’ve recently crossed the halfway point of 2023, and what a year it’s been for North American stock markets.
Returns have been well-publicized, but to drive home the point …
Year-to-date (as of July 24), we’re looking at numbers that are nothing short of astounding.
The tech-heavy NASDAQ leads the charge with a mouth-watering 28% return since the calendar turned. But the 14% return provided by the more diversified S&P 500 still ranks amongst the best first-halves ever.
Heck, even the S&P/TSX Composite Index is within a stone’s throw of its all-time high.
So What’s Driving All These Market Gains?
The emergence of Artificial Intelligence (AI) has been bolstering investor enthusiasm in 2023. NVIDIA (NASDAQ: NVDA) — with its year-to-date stock price appreciation of more than 170% — is the poster child for this enthusiasm.
And while our Canadian market doesn’t offer near the opportunity to invest in the AI trend, here we have Shopify (TSX: SHOP) as the top performer in the Canadian market, booking an 85% return in 2023 and a 136% return from when it bottomed in October 2022.
Did you miss out on NVIDIA’s and Shopify’s spectacular recent runs? Being on the sidelines when stocks are posting these kinds of returns, especially over such a relatively short period of time, hurts.
After all, fear of missing out (FOMO) is one of the most powerful behavioral forces in the world of investing, and these are the kinds of returns that fuel it.
If you’re kicking yourself, I come bearing good news.
Opportunity Still Abounds
Who remembers marijuana-mania, circa 2017?
How’d that turn out?
We’ve had a heaping portion of AI-related punditry dumped on us in 2023. Some of it will land in the years ahead. Much of it won’t.
And while “investors” have been tripping over themselves to get in on the AI hype, vast swaths of the market, and especially the Canadian market, have been cast aside.
Here, I’m going to zoom into three corners of the market that my colleagues at Motely Fool Canada and I find far more intriguing than the AI craze.
In no particular order …
TSX Dividend Stocks
You don’t have to turn over many rocks to find companies that currently offer a dividend yield that’s not only nicely above their 10-year average, but in some cases, is approaching what’s typically been available only during times of severe market disruption.
Look no further than our favourite Canadian telecom company, Telus (TSX: T). The current dividend yield that’s just a snick below 6% is well above the 4.4% average yield over the past decade (even the Covid-induced spike to 5.9% that occurred).
Canadian Commodities Stocks
Talk about stocks that have been cast aside. In our opinion, the energy sector has been forgotten and today offers an opportunity that’s akin to shooting a fish in a barrel. Production companies like Canadian Natural Resources (TSX: CNQ) and Tourmaline (TSX: TOU) are generating gobs of free cash flow in the current commodity price environment, and the market could care less. Same goes for energy service companies like Pason Systems (TSX: PSI).
We can even cast our gaze beyond the energy sector and consider a company like fertilizer giant and retail juggernaut Nutrien (TSX: NTR). Essentially, the world needs Nutrien to feed itself. And right now, the market has entirely lost sight of this.
We think much of the commodity sphere is there for the taking, right now.
Industrials
You wouldn’t necessarily know it by getting on an airplane, or even going to the grocery store, but parts of the global economy are still just finding their footing on the back of the pandemic. Supply chains were severely crippled during the covid years, and many manufacturing processes are only now capable of handling what they could.
Thing is, demand has been back for some time. On numerous fronts, supply has been unable to keep up, and we’re left with companies that are facing significant backlogs. We think this should translate into results that look considerably better than they have.
One such company is NFI Group (TSX: NFI). Its supply chain was effectively broken through the meat of the pandemic, yet as one of the world’s largest manufacturers of zero-emission buses, demand for its offerings has never been more robust. Although supply chain challenges linger, we think the situation is solvable. The stock price, though, is far more reflective of these lingering issues than the robust demand that actually exists. Something’s gotta give.
Foolish Bottom Line
The AI-fueled technological evolution that’s afoot might well carry the investing narrative over the next decade.
However, we are wary of falling prey to FOMO’s powerful pull to buy “hot” stocks even if they appear somewhat overvalued. There is such a thing as paying too much for a stock, and many an investor has been burned. (Ahem, marijuana.)
So as we wait to see how AI shakes out, opportunity abounds elsewhere. The companies I mentioned here are but a smattering of what the Motley Fool Canada investing team has recommended in our members-only services thus far in 2023.
Curious to learn more? Check out our flagship investing service, Stock Advisor Canada — we’re beating the TSX by 28 percentage points as of July 28.
