In this evolving global economic landscape, Canadian investors continue to look for ways to maximize their returns by picking promising growth stocks in the market. However, the inverse of this action is also true. Investors should think about which stocks are worth selling or divesting, just as much as which stocks to own over a particular time frame.
Indeed, the start of a new year is about as good a time as any to rebalance a portfolio. So, for those looking to add some diversification to the mix while reducing risk, here are two buys and a sell to consider to kick off January right.
Let’s dive in.
Buy: Shopify
Shopify (TSX: SHOP) is amongst the leading cloud-based e-commerce platform providers. The company’s core platform is specially designed for small and medium business entities. It caters to merchants in various business aspects, such as sales channel management through the web, mobile storefronts, pop-up shops, etc.
With the rise of artificial intelligence (AI), Shopify is expected to upgrade its tech by incorporating AI-based technology as advanced features on the platform for merchants. Moreover, it is also expected that the company earnings may grow up to 1,650% in the current financial year. Much of this enthusiasm has already been baked into the company’s stock price, considering its impressive rise last year.
In 2023, the stock returned a value of 117% to shareholders, despite a slowing macro environment. Multiple cost-cutting measures were taken by the company, including downsizing and the abandonment of loss-making businesses, that allowed it to make profits. For the next year, the prospects look good, as Shopify’s profit margins continue to grow. I remain bullish on this stock heading into 2024.
Buy: OpenText
OpenText (TSX: OTEX) is an enterprise information management solution provider that offers developer extensions, B2B integration, and record management services. As of November 2023, the stock experienced a strong rally, growing 37%, backed by a US$5.8 billion acquisition and continuous modernization efforts.
Some analysts have calculated the company’s intrinsic value 64% above its existing share price, and while I found it difficult to replicate these numbers using a two-stage DCF model, I think it’s within the ballpark of where this company should be valued. I’m of the view that as organizations continue to streamline their back-end operation, OpenText should continue to drive value within its value chain. This is a long-term tech holding, and I think it is worth buying on dips this year.
Sell: Canopy Growth
In 2024, one of the major trends I anticipate will proliferate in the market is a move away from cannabis stocks. Indeed, while 2023 provided some strong performance for certain names in this space, Canopy Growth Corp (TSX: WEED) generally hasn’t participated in the rally. There are fundamental reasons for this, suggesting caution is warranted for those looking to speculate on this sector’s growth potential this year.
As of December 2023, Canopy’s share price has fallen by 98% over the previous three years. The stock is expected to continue following a downward trend as it has been experiencing losses and a fall in revenue. Recently, it announced the divestment process of its popular brand “This Works,” which has been acquired by Inspirit Capital. With further losses, it may be a good idea to sell these stocks.
Conclusion
When thinking about where to add or reduce exposure over any time frame, it’s important to consider not only the sectors and specific tailwinds driving individual stocks but also the macro environment the overall market is working within. In that regard, it’s hard to predict how stocks will perform in 2024. That’s especially true when one considers last year’s incredible outperformance.
I think this year will prove to be even more of a stock picker’s market, providing opportunities for individual investors to profit from owning the right stocks.
