Bear markets can be tough for investors, as they experience a massive decline in the valuations of their portfolio holdings. Generally, growth stocks are pummelled when market sentiment turns bearish, with several stocks across sectors even losing over 80% in market cap within a few months.
In case an index falls over 20% from all-time highs, it enters bear market territory. The double whammy of rising interest rates and elevated inflation levels drove several global indices into bear markets in 2022.
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Don’t try to time the market
Several retail shareholders make the mistake of waiting for the market to bottom before they reinvest in the equity markets. But the average bear market lasts for 289 days, and it is almost impossible to time the market bottom. In fact, it would be unwise to even attempt to do so. Why?
If you stayed invested in the S&P 500 between 2003 and 2022, the average annual returns would be 9.8%. So, a $10,000 investment in the S&P 500 in January 2003 would be worth $64,844 in December 2022.
But if you missed the 10 best trading days in this period, your portfolio would return an average of just 5.6% annually. Moreover, if you missed the 40 best trading days, your annual portfolio returns would be -1.1%.
Market timing is extremely difficult as the best trading days generally occur during bear markets. According to a report from Visual Capitalist, seven of the best 10 trading days in the past 20 years occurred during a bear market. Additionally, the worst trading days occur during bull markets.
It’s better to invest in a bear market, allowing you to create generational wealth and benefit from outsized gains over time. A bear market provides investors an opportunity to buy undervalued shares at a cheap valuation. Here is one such TSX stock you can buy today is Pet Valu (TSX: PET), which is trading 40% below all-time highs.
Is Pet Valu stock a buy, sell, or a hold?
Valued at a market cap of $1.84 billion, Pet Valu is Canada’s leading retailer of pet food and related supplies. It has more than 700 corporate-owned and franchised locations in the country and has a portfolio of over 7,000 products, allowing the company to end 2022 with sales of $951.7 million.
With a market share of 18% in Canada, Pet Valu has a broad customer reach and is located in all 10 provinces. Around 65% of franchises own a single store, and 22% own two stores, with a maximum ownership of seven stores. The average franchisee tenure is nine years, with an annual turnover ratio of less than 4%.
Pet Valu believes long-term growth will be driven by its franchised network, as it aims to expand the store count to more than 1,200 locations over time. Despite a sluggish macro environment, it forecasts same-store growth between 7% and 10% in 2023. In the last seven years, same-store growth stood at 12%.
Analysts expect Pet Valu to increase sales from $951.7 million in 2022 to $1.16 billion in 2024. Its adjusted earnings are forecast to expand from $1.6 per share to $1.84 per share in this period. Priced at 1.5 times forward sales and 14 times forward earnings, PET stock is very cheap and trades at a discount of 60% to consensus price target estimates.
