Young TFSA investors should probably think about playing the long-term game as valuations across tech plays begin to swell again. Undoubtedly, nobody wants to be left sitting on the sidelines while the next big tech trend takes hold.
At this juncture, it’s AI that’s taken the world by storm. In a year from now, only time will tell what’s to happen to today’s red-hot AI plays. Though bubbles can form in the early stages of new technological trends, I’d argue that it’s a mistake to dismiss anything that has AI exposure as some sort of overheated, overvalued stock waiting to collapse.
Arguably, 2022 served as a roadbump for many momentum plays that may have gotten too far ahead of themselves. Some of the stocks that imploded during the tech wreck of 2022 have recovered, with some hitting new all-time highs. Other stocks are still off considerably from their highs (take the work-from-home pandemic darlings as an example) and may not see a new high at any point over the coming decade.
TFSA investors: You don’t need tech for a shot at TSX-beating results
Indeed, it’s not hard to imagine another roadbump that could be coming for some of the more AI-centric names. Either way, TFSA investors should stick with what they know. Further, they should stick with companies that boast valuation metrics that aren’t much higher than historical norms.
Of course, higher multiples may be worthwhile if earnings growth is able to keep pace in the future, especially in a world that could see much lower rates. That said, I believe it’s much better to pay a slight premium for a quality company that has a bit more certainty on the front of earnings rather than risk overpaying for a firm that could have a harder time delivering on past promises.
In this piece, we’ll keep things simple with one stock that I’d consider a potentially intriguing core holding for any TFSA fund that aims to beat the TSX Index over the next three years.
CP Rail
CP Rail (TSX: CP) is a railway firm with one of the most extensive networks in North America following its acquisition of Kansas City Southern (KSU). It’s an industry mega-merger that will be tough to top! It’s one that could grant CP Rail a durable competitive advantage over some of its rivals in the transportation scene.
Undoubtedly, the KSU deal gives CP a network that runs through Mexico, a market that could see increased freight over the coming decade as firms choose to “on-shore” goods from overseas. Indeed, the “on-shoring” trend could mean more traffic moving across the U.S.-Mexico border in the future, which could be a boon for CP’s business.
For now, investors are quite muted as the rail scene pulls the brakes. But don’t sleep on CP stock while it’s going for $105 and change now that estimates are more muted. At 23.6 times trailing price-to-earnings, CP stands out as a growthy railway that may stand out from the peer group. As CP shares continue to consolidate, new TFSA investors may wish to stash the name at the very top of their radars.
