It’s a great time to be a contrarian investor now that some of the market’s hottest stocks are taking a bit of a breather. At the same time, some of the year’s laggards — think the Canadian bank stocks — are also letting negative market-wide sentiment weigh on them. Indeed, the big banks are cheap dividend payers that have gotten just a bit cheaper after passing through a turbulent September.
At this juncture, I think you cannot go wrong by initiating a long-term position in any one of the Big Six Canadian bank stocks right here. They look untimely, given the sluggish economy, and though their dividend yields are at a high point, they still pale in comparison to the current risk-free rate.
Indeed, any stock can be a risky ride going into a recession, whereas Guaranteed Investment Certificates (GICs) can be safe havens. Unless you have to exit the markets within the next year or two, though, value stocks stand out as having a far better risk/reward scenario right here, provided you get in at a decent price.
Image source: Getty Images
TD Bank stock
At this juncture, analysts believe shares of TD Bank (TSX: TD) could return as much as 15% from today’s prices. Add the dividend yield of 4.72% into the equation, and TD stock looks a heck of a lot more bountiful than the likes of any risk-free asset in the market right now. Of course, it doesn’t seem like TD is a better bet than GICs right now, especially after a hectic year of wild swings.
Year to date, TD stock is off more than 6%, while the TSX Index has been flat. The once-beloved big bank is heavily out of favour these days. Still, I think it’s never a good idea to bet against the big bank stocks, just because of their ugly rear-view trajectories. It’s hard to be optimistic when we hear all this negative chatter on television after a bad day in markets. While it’s never easy to buy as others sell, it is key to achieving long-term success.
Right now, TD Bank stock still seems to be stuck in limbo after walking away from its First Horizons deal earlier this year. American regional banks were in a crisis to start the year. Though things have calmed lately, it seems doubtful that TD will want to resume its shopping spree south of the border. Not when there are so many risks on the table.
With plenty of liquidity, expect TD to weather economic chaos to come, perhaps with a potential deal in hand at some point in 2024. Either way, TD stock looks like dead money through the eyes of Wall Street. But that’s exactly why I like it. Today, shares trade at 10.6 times trailing price to earnings (P/E), which implies low expectations.
Couche-Tard stock
Alimentation Couche-Tard (TSX: ATD) should be a core holding in any young Tax-Free Savings Account investor’s portfolio. The stock is up over 119% in five years and 18.6% year to date. For such a low-tech retailer, the stock’s performance is nothing short of incredible. Further, Couche-Tard’s strategy is likely to keep the good days going, even as Canada sinks into an economic rut.
Like TD Bank, Couche-Tard has billions in acquisition power. If stocks roll over, the company can snag a bargain. In a high-rate environment, such financial wiggle room is worth that much more. Combined with management’s knack for producing synergies from most deals it makes, it’s clear Couche-Tard is a stock to hang onto, even as it revisits new all-time highs of around $74.
Notable Couche-Tard bull and RBC analyst Irene Nattel thinks Couche stock could be headed to $87 per share — that’s a huge 22% gain from here. That’s a realistic target to watch moving forward.
Better buy: TD or ATD stock?
It’s hard to choose between the two right now. But if I had to pick one, it’d be Couche, which is a winner I’d bet will keep on winning through 2024. TD, while deep in value, is less timely and more prone to fluctuations come the next downturn.
