Just because the S&P 500 had a sharp bounce off its recent correction doesn’t mean it’s time to load up on stocks with less regard for valuation. Indeed, after such a hot multi-week run, investors should grow more selective. That means passing up on more stocks that don’t meet your criteria as a value investment.
At the end of the day, investors must ask themselves what has changed in the past few weeks that would warrant shares of a company to be X% higher. Oftentimes, an improvement in the macro trajectory or a rally in the 10-year U.S. Treasury note (rates fall as prices move higher) are enough to ignite renewed optimism.
Though I don’t view stocks as overvalued, especially on this side of the border, I think it’s only prudent to be a pickier investor as the broader markets prepare for Santa Claus to come to town this December. Whether this sharp rally is followed by another dip remains a mystery. Either way, I think we should get used to extreme levels of volatility. It does come with the territory of numerous uncertainties, after all.
In this piece, we’ll focus on a trio of stocks that I think can keep your TFSA moving steadily higher over the coming years, even without as much help from the broader markets or economy. Indeed, defensive growth stocks at a discount may be few and far between. But they do exist, and in this piece, we’ll look at a few that are on my personal watchlist right now.
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Fairfax Financial Holdings
First, we have Fairfax Financial Holdings (TSX: FFH), a Canadian insurance and investment holding firm run by the legendary Prem Watsa (known by some as Canada’s Warren Buffett). As artificial intelligence (AI) and weight-loss drugs captured the attention of many investors, Fairfax has been steadily (and quietly) making higher highs.
In fact, the insurer is just shy of new highs right now after more than doubling (102% gains) in the past two years! The company has made smart investments in recent years, and as the insurance profitability improves, I think FFH stock is one of the big TSX winners I’d dare not take profits in! It’s a great long-term hold, and things could get even brighter in 2024 and 2025.
PetValu Holdings
PetValu Holdings (TSX: PET) is a Canadian pet supply retailer that’s felt pressure lately. The stock is fresh off a devastating plunge that saw shares lose 44% from peak to trough. Indeed, 2023 has not been kind to the brick-and-mortar juggernaut.
As the economy drags its feet, people may be inclined to spend less on their beloved animals. Still, the economy won’t stay grounded forever. And once it takes off again, pets across the nation could be in for spoils once again. After a decent third-quarter number that saw revenues rise (profits sagged year over year), I view PET stock as a deep-value play for investors seeking mid-cap growth at a discount.
Loblaw
Finally, we have Loblaw (TSX: L), a standout winner from this inflationary era. Even as inflation normalizes (technically, the Consumer Price Index is down, but food prices are still running hot), Loblaw could continue to win big for investors, as it looks to retain the many value-focused customers it won over the past few years.
Indeed, Loblaw may not have a massive moat, but it does have a reputation for offering decent deals across a select line of goods. For that reason, L stock could outperform if a recession is, in fact, coming to Canada.
At 19.9 times trailing price to earnings, L shares look more or less fairly valued. But if you seek defence in a rocky market, I’d not overlook the name!
