If you’ve got too much cash just sitting in your RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account), perhaps now is a decent time to start putting some of it to work as the market wobbles ahead of Halloween. Indeed, the spooky end to October could come before an even spookier November. Either way, investors should not be scared of higher interest rates. Indeed, rate woes have been dragging down this market for quite some time now. Arguably, such fears have been lingering for around two years now!
Here in Canada, our central bank (the Bank of Canada) just held off on raising rates. Indeed, the lack of a rate hike has been a pressure point on the loonie relative to the U.S. dollar. And though the loonie could sink further relative to the greenback, as the U.S. Federal Reserve (the Fed) continues to stay a bit more hawkish, I’d not make a big deal of the whole situation.
The weak loonie should incentivize investing domestically, however. Unless you’re looking to beef up your tech exposure on the dip, I think the TSX Index can meet your needs with your next big stock purchase.
Even if inflation has come down, consumers are still feeling beaten down at the grocery store. Further, rents are lofty, and rate hikes have caused mortgage payments. All considered, Canadians are feeling the pinch. And a recession may be the next step.
Fortunately, the market has already had a recession on its radar. At these levels, I think there’s profit to be had for brave TFSA or RRSP investors willing to deploy capital as market sentiment sinks.
At these levels, I’d consider shares of Algonquin Power & Utilities (TSX:AQN) and Fortis (TSX:FTS).
Algonquin Power & Utilities
Algonquin Power & Utilities went from darling to dud over the past two years, as shares sank from above $20 to $7 and change per share. I think it’s safe to say that many investors have moved on from the ailing firm. As the firm sells out of its renewable businesses, I do see a path higher for the deep-value play as it looks to move on from its historic collapse.
Indeed, a stock plunge and the stepping down of the chief executive officer is never an encouraging sign. However, I think the dividend won’t be destined for another drastic reduction.
The firm could rake in a great deal as it sells off its renewable portfolio. Though only time will tell how the stock fares in a recession year, I view it as a lowly correlated (to the TSX Index) stock to consider if you’ve got a stomach for deep value.
At 0.7 times price to book, AQN stock is getting absurdly cheap, in my humble opinion. Yes, it’s been a painful ride, but the risk/reward scenario seems too attractive now that most income investors have had the chance to move on. For new money in the name, I like the risk/reward tradeoff a lot!
Fortis
Fortis stock may be more your cup of tea if you don’t like seriously distressed firms. The stock is still down over 13% from its high. And it could fall further into correction territory, as rates continue to rise, pressuring the utility plays.
The stock yields 4.33%, which is on the high side for Fortis. Though it’s still less than what you could get from a 10-year Treasury (4.85% at writing), I am a fan of Fortis’s dividend-growth trajectory, which is still very much in play!
All considered, I still view Fortis stock as a better long-term bet than bonds. Yes, it’ll be turbulent, but with a five-year capital plan in place, I see a pathway to dividend growth. It’s a Steady Eddie that could sail smoothly through a recession. At 18.7 times trailing price to earnings, shares look quite cheap in my books!
