As the economy looks to move through a potential mild recession, investors may wish to pursue stocks on their radar that are on the lower end of the historical valuation range. Indeed, stocks continue to add to the strength encountered in the back half of 2023. Though the first week of 2024 saw some of the bears return to the driver’s seat, I think it’s safe to say that many have gone right back into hibernation amid the tech sector’s latest run. Here we are, with the S&P 500 and Nasdaq 100 at new heights, and a TSX Index that may be next up to the plate to break through to new multi-year heights.
Amid the surge, I’d stick with quality Canadian companies as the market’s gains begin to broaden out to some of the overly punished cyclical plays that could lead the charge once the mild recession (or lack of one) is over.
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Don’t time the market, Fools!
Indeed, holding considerable sums of cash while waiting for that looming recession has proven to be a terrible idea, at least over the past three years. While a Canadian recession is still very much possible, I think there’s a good chance that top Canadian stocks can sail through a recession without taking too big of a hit to the chin.
As the economy settles amid a more dovish central bank that could wind down its attack on high levels of lingering inflation, I’d look for the best-in-breed value plays to proceed higher from here.
Let’s have a look at two intriguing TSX stocks that are on my radar going into February 2024:
TFI International
TFI International (TSX: TFII) is a transport firm (less-than-load trucking) that’s really improved operations over the years. Though shares encountered quite a bit of volatility in 2023, shares are just one (or two) days away from making new highs again. At $180 and change per share, I do view the trucking firm as too cheap to ignore, especially if a post-recession recovery proves fast and furious.
Not only is TFI a well-run firm that’s learned (and gained) a lot over the years, but it’s a firm that could really boom once demand for less-than-load shipping kicks it up a notch. Indeed, the consumer has felt pressure amid inflation and sweeping layoffs in the tech sector. However, as rates and inflation fall, while consumers begin to feel more confident again, I’d look for the top transport players to really put their foot on the gas.
At writing, the stock trades at 22.3 times trailing price-to-earnings (P/E) alongside a nice 1.21% dividend yield. I think there’s a high chance that the $200 level could be breached in 2024.
Magna International
Magna International (TSX: MG) is another economically sensitive play that could really kick things up a notch if Canada’s recession proves short-lived (and maybe even mild). The auto sector doesn’t do well when a recession comes knocking, and consumers postpone big-ticket buys (like cars). In any case, Magna’s long-term narrative is worth betting on as shares continue to stall into 2024.
At the end of the day, the electrification boom could help drag MG stock out of the gutter. And though the boom could go dormant for another year or two, I do view Magna as a great way to play the post-recession economy. The stock goes for 15.4 times trailing P/E, with a juicy 3.4% dividend yield. Unless you’re a money manager who needs to outperform over a one-year timespan, I’d look to collect that nice payout as you wait for the auto scene to recover.
Sure, auto parts aren’t exciting, but the valuation and yield offered by MG stock, I believe, are more than intriguing.
