Hot stocks with a considerable amount of momentum behind them seldom come cheap, especially in this environment. The bull market seems to be in full control, as we hear a bit less about the looming recession and a tad more about a recovery. Inflation has come down by quite a bit.
The latest U.S. inflation reading was quite cool, allowing the broader S&P 500 to gain, at least in the earlier innings of Thursday’s choppy trading session. Indeed, the gains we eventually wiped out by the close. However, investors seeking to buy the dip as hot stocks start to cool may wish to do so if they’ve got too much cash sitting on the sidelines.
In this piece, we’ll look at three stocks with upside momentum that trade at reasonable multiples relative to their long-term growth profiles.
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Constellation Software
Constellation Software (TSX: CSU) is a Canadian software company that’s grown impressively, thanks in part to smart acquisitions. Indeed, the 2022 technology selloff weighed on the stock, but not nearly as much as the Nasdaq 100. At its worst, the 2022 selloff dragged the stock down just north of 22% from peak to trough — not at all a bad spill compared to many tech plays that shed well over half of their value.
Today, shares of CSU are near new highs of around $2,800 per share. Indeed, the stock seems pricey at 34.25 forward price to earnings. However, with strong management and a proven growth-by-acquisition strategy, I continue to like the stock right here. It may not be the cheapest stock at new highs, but it’s one that I believe is cheap relative to its strong fundamentals and growth profile.
Berkshire Hathaway
Up next, we have Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B), which recently clocked in its quarterly earnings last Saturday. The second-quarter numbers were far from amazing, but they were solid given the macro circumstances. Shares ended the quarter with a huge US$147 billion cash hoard. Indeed, the firm has a good problem on its hands as its liquidity position swells further.
I think Warren Buffett is one of the best investors of our generation, and Canadian investors should be willing to swap their Canadian dollars for greenbacks to expose themselves to the name. Even at new highs of around $360 per class B share, I view Berkshire as a relative market bargain.
Recession plunge or not, Berkshire has the firepower to buy any dips. That alone makes the stock worth pursuing if you’re looking for a set-and-forget play.
Alphabet
Alphabet (NASDAQ: GOOG) isn’t exactly a cheap stock at 29.7 times trailing price to earnings. However, compared to other artificial intelligence (AI) stocks in the market, I view shares as a relative bargain. The stock’s been off to the races since bottoming out a few quarters ago.
As the company looks to expand its AI arsenal, I find it increasingly likely that the stock will hit a new high within the next year. The stock’s off 13% from its high and seems like a wonderful big-tech innovator that Canadians should consider scooping up if they’re at all shy on AI exposure.
