It’s been a terrific start to November for investors who resisted the urge to sell in the face of market volatility. Indeed, Santa Claus may have already come to town, and as the market rally moves into its next stage, investors may wish to consider buying a few of value plays on the way up.
Indeed, it’s hard to catch a bottom in any stock. And though valuations are higher than they were a month ago, I still think the tame inflation data in the U.S. is encouraging.
Even if the U.S. Federal Reserve wants to see “more evidence” of retreating inflation, I find it hard to believe that more rate hikes will be in the books for 2024, especially if the economy shows more weakness.
Investors should bet on value stocks as inflation winds down further going into 2023’s end
With some industry experts pointing toward deflation or disinflationary pressures, I do think rate cuts could be closer than many think. Indeed, that “higher for longer” environment may not be possible if disinflationary pressures take hold. If rates come back down to Earth, I think the REITs (Real Estate Investment Trusts) and “expensive” high-growth tech stocks could be in for a further recovery over the next two to three years.
Indeed, the painful rate-driven collapse in REITs and hyper-growth stocks could precede a multi-year rally driven by retreating rates and disinflation (the falling rate inflation) or even deflation (negative inflation).
In this piece, we’ll have a closer look at Canadian Apartment Properties REIT (TSX:CAR.UN) and Shopify (TSX:SHOP), two recovering investments that may just be able to rally toward their seemingly distant all-time highs if deflation replaces inflation as the top concern over the next few years.
Canadian Apartment Properties REIT: Strong assets, great value
CAPREIT is a residential REIT that has an enviable portfolio of properties in the Vancouver and Toronto rental markets. Indeed, CAPREIT has some prime real estate, and it’s well-equipped to recover as rental demand stays hot while rates begin to retreat. Indeed, lower borrowing costs are a plus for REITs seeking to expand their property portfolios.
After dipping briefly to 52-week (and multi-year) lows, the stock ricocheted very sharply, bouncing just over 11% in a matter of weeks. I think the relief bounce is far from over, especially if we have seen a peak in rates.
Still down around 28% from all-time highs, I view CAPREIT as a growth-focused REIT to nibble away at as it looks to add to its recent rally. Shares also sport a pretty nice yield of 3.16%. It’s not massive, but it’s extremely healthy.
Shopify stock: Growth at a reasonable price!
Shopify is an e-commerce titan that’s continuing to innovate amid macro headwinds. Despite recent cuts, I still view Shopify as a growth darling that will be ready to roar once the new bull market comes into effect (if it hasn’t already). Now, the stock has already had quite the run, up over 89% year to date. But it’s still off over 56% from its all-time highs.
Shopify’s peak used to be out of reach. But if the company continues to take share in the digital retail space while the economy recovers and rates retreat, I do think such a Goldilocks climate could propel Shopify stock much higher.
How high can Shopify stock fly? Let’s just say I’d not be surprised if the stock flirts with new highs within three years if the right cards fall into place.
Though Shopify may not be perceived as a value stock to many, I do view it as a great deal given the magnitude of long-term growth you’re getting. As such, I view the growth stock as a potential value play for long-term investors.
