With the month of January (and a huge slate of quarterly earnings) coming to a close next week, investors have plenty of great stocks to pick from if they’ve yet to put their latest TFSA (Tax-Free Savings Account) contribution to work. Indeed, it’s been a strong start to the year, with January seeing more of the same strength from the big-tech heavyweights (the Magnificent Seven mega-cap tech plays).
As valuations creep higher and investors begin feeling just a little bit greedier, value investors may wish to take a step back and trim profits in some of the overheated names. Indeed, I’m not calling for any sort of rotation from growth to value. However, I just think it’s prudent to trim your profits in stocks that you view as priced for perfection.
Of course, buying and holding for decades at a time can also be a great strategy. However, if you’re light on cash, it may make sense to lighten up in certain places so you’re able to have enough dry powder to make the most of the market’s next inevitable pullback.
I have no idea (nor does anybody else!) if greed will shift to fear next month, next quarter, or next year. In any case, it’s a U.S. election year, and that’s sure to bring big swings in the markets. So, without further ado, let’s check out one stock I’d buy and one to sell (or at least do some trimming) going into the month of February.
Time to buy? Spin Master
Spin Master (TSX:TOY) stock is a Canadian toy company that’s really made strides on the front of digital gaming. Indeed, even as toy sales begin to show subtle signs of weakness, the digital segment can help steer the Spin Master ship somewhat steadier. The company has a vast portfolio of toy brands, with modern hits such as Paw Patrol, as well as classics like Etch-a-Sketch, Gund plushies or even Rubik’s Cube. Indeed, Spin has been feeling pain from the tough macro environment that’s hurt consumers.
The stock didn’t do much over the past year, with just a 2% return. At 16.8 times trailing price-to-earnings (P/E), I view TOY stock as deeply discounted relative to its long-term potential. The company’s 50th anniversary of the classic toy Rubik’s Cube could bring more sales to the old-time favourite. Additionally, I expect Spin could keep acquiring smaller toy brands as it bolsters the brand line-up further. The firm recently completed its acquisition of Melissa & Doug, adding to its early childhood toy brands.
Going into 2024, I think Spin is well-equipped to begin rallying again.
Time to sell? IGM Financial
IGM Financial (TSX:IGM) seems like an appealing yield play, with its juicy 6.2% dividend yield. However, the company behind investment management brands such as Mackenzie Investments could continue to feel headwinds as more investors opt to go down the DIY route. Additionally, passive investing could continue to stay strong over the long term, which means less money in the pockets of the active managers.
In any case, IGM is getting some skin in the ETF (Exchange-Traded Fund) game, which should help offset pressures elsewhere. Still, I can’t say I’m in a rush to buy the stock after shedding 18% of its value in the past two years. Due to a weak technical backdrop, I’m inclined to sit on the sidelines, and I don’t care how rich the yield is or how cheap the stock seems (just nine times trailing P/E if you can believe it). In my opinion, IGM stock doesn’t have a lot going for it in 2024.