As the broader markets stumble into September 2023, opportunistic investors should be ready to plough money into their favourite plays on any potential dips. Undoubtedly, it’s been a while since we’ve had a run-of-the-mill 10% correction.
There are plenty of uncertainties that could pave the way for such a dip. And though enthusiasm over initial public offerings (IPOs) and artificial intelligence (AI) has led to suspect valuations in certain names within the tech industry, I still think those who look into neglected sectors may be able to score a pretty decent value for their money.
There’s no question that technology has led the broader S&P 500 higher. When you take out such mega-cap winners, the S&P 500 hasn’t been all that hot.
Further, the TSX Index still seems to be quite cheap, assuming that the coming recession ends up being quite mild. In any case, there are plenty of value plays to scoop up this September. Though they’re not the most exciting of plays, I think investors shouldn’t be caught waiting around for a correction before doing a bit of buying.
Consider shares of Bank of Montreal (TSX:BMO) and Canadian Pacific (TSX:CP).
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Bank of Montreal
The Canadian bank scene has gone unloved for quite a while now. With shares of BMO still off more than 21% from their all-time highs, I think patient income investors can get a lot out of the name now that expectations are quite muted going into a potential downturn.
Undoubtedly, the latest round of earnings hasn’t been all too great for Canada’s big banks. BMO may have fallen short of analyst profit estimates for the third quarter as expenses surged. Even as provisions look to weigh more heavily, I find the stock to be one of the cheapest of the batch right now.
BMO stock goes for 11.7 times trailing price to earnings, with a juicy 4.9% dividend yield. Sure, you could score a risk-free 5% yield (or more) with a Guaranteed Investment Certificate (GIC) on a one-year term. That said, I’d be willing to bet that BMO has more to offer for investors on a total return front (that’s dividends plus capital gains) who pick up shares at less than $119.
All considered, BMO stock is a blue chip that’s singing the blues, but likely not for long!
Canadian Pacific Kansas City (CPKC)
CP stock may have felt a bit of turbulence, just like most other TSX stocks over the past two years. That said, CP has been a tougher freight train to stop in its tracks, with shares currently down just north of 4% from all-time highs. At a time when railway stocks are deep in correction territory (some are in a bear market, off more than 20% from their highs), I’d argue CP stock’s resilience is incredibly remarkable.
Undoubtedly, CP’s Kansas City Southern acquisition has made CP a unique play now that it spans two major borders (Mexico-U.S. and U.S.-Canada) in North America.
Further, long-term investors are getting one of the best top bosses in the business (Keith Creel). With strong managers and new, robust rail assets to drive long-term value, it’s not hard to see why CP has been more resilient than its peers.
My only issue with CP stock? It’s not the cheapest stock in the rail scene at 23.2 times trailing price to earnings. Regardless, I think the premium will prove worthwhile, as it makes the most of its impressive rail network and brings the fight to its rail peers here in Canada and south of the border.
