This new year, you have resolved to get your finances in place and make informed investing decisions. I may tell you which stock to buy and why, but this step comes after you set your investment goals. Before buying stocks, determine how much you can invest, for how long, and what type of returns you expect. When you know what you want, you can reverse engineer and select stocks aligned with your goal.
How to identify stocks poised for a potential bull run
The next step is to look at the overall macroeconomic scenario. While you can’t time the market, you can make an educated guess on which sector is at its peak and which is on the brink of growth. Every stock works differently. When you have a reason to be bullish on the company and the stock price doesn’t match your reason, the market has not yet priced in the potential growth. That is when you know that this is the stock worth buying.
But when the business conditions remove your reason for investing, you know it is time to exit and look for another stock.
Limited growth for Suncor stock
Suncor Energy (TSX: SU) is a stock that has reached its cyclical peak of $48 and has no further upside. With inflation and oil prices easing, growing your money by buying the dip and selling the rally has faded. The oil stock is trading at $45. From here, it might grow to $48 or fall to $41.
If you purchased Suncor stock for dividends, there are better dividend stocks like Telus Corporation trading closer to their lows. They can grow dividends annually and your invested amount by 10-20% as they recover from their 2023 dip.
You have achieved the objective if you purchased Suncor stock in 2020 or 2021 below the $23 price to double your money. There is not much upside left for the stock, but there is potential for a significant downside. Remember, the oil industry is decelerating as the energy sector transitions to cleaner energy solutions. You can book your profits from Suncor and look for another stock at the beginning of its growth phase.
A growth stock poised for a potential bull run
Air Canada (TSX: AC) stock is at the brink of its seasonal rally. An airline that reversed its pandemic losses into profits through significant cuts is now on the path to revival. Summer is a seasonal peak for it as it sees leisure travellers return. With several new routes, a fleet of many new planes, and easing oil prices, Air Canada stock is ready to hit the skies this summer.
Air Canada shares are trading around $18, which is a good entry point. For the last few years, it has been trading in the range of $18-$24, and many investors have made short-term profits by buying low and selling high in this range-bound momentum. Now is the time to jump into the bull run early and book your profits when the stock reaches $24.
The $24 price is tricky as the stock sees resistance at that level. Even though Air Canada’s net profit has surpassed its pre-pandemic high of $1.47 billion, the $5.4 billion net debt and equity dilution have reduced the per-share earnings. However, the easing of oil prices and rising travel demand could help the airline return to its growth story. Moreover, the airline is committed to reducing its high interest debt, which could further boost its profits.
If Air Canada’s share breaks the resistance and surpasses the $25 price point, it will mark the beginning of long-term growth.
Investors takeaway
You could consider buying 100 shares of Air Canada, selling 50 at the $24 price point and holding the remaining 50 shares for the long haul. This way, you can reduce your downside risk and enhance your upside potential.
