If you’re a beginning Tax-Free Savings Account (TFSA) investor looking to put some cash to work for the long haul, perhaps you’re waiting around for the recent rally to run out of steam. Undoubtedly, it’s never fun to invest after there’s already been a sizeable move higher. With the S&P 500 flirting with 5,000, some market strategists are ringing an alarm bell, calling for some sort of market correction over the near term.
Take Fundstrat’s Tom Lee as an example of an incredibly accurate analyst who called the market rally with impeccable timing over the past year and a half. Though some may view the man as a perma-bull of sorts, it’s pretty jarring that he recently called for stocks to correct after the recent run. He’s not as bullish anymore!
Can the stock rally continue strong?
Though Lee is still a bull on the long-term prospects, it seems like the stage could be set for some sort of turbulence, given the S&P 500’s glorious ascent in recent quarters. Rates may be destined to go lower from here, but with most of the easy gains already in the books, questions linger as to where investors go from here. Do they pay a bit more for exposure to the market’s favourite stocks?
Do investors rotate back to value? Or is Mr. Market going to punish those who get ahead of themselves? Only time will tell.
Personally, I take short-term market calls with a grain of salt. However, if you’re a new investor, I’d argue it’s prudent to only nibble your way into the markets with a dollar-cost averaging (DCA) approach to reduce risk. DCA may not be the magic solution to avoiding the worst of any market-wide choppiness. But at the very least, it’s a way for new investors to average down their cost bases if things don’t go according to plan after they’ve bought into a new position!
I’m an advocate for maximizing time in the markets. But after a hot run, I’d argue those keen on putting new money to work should consider building a position over time in case there are a few bumps in the road ahead after the incredible tech-driven run led by a handful of behemoths. At this juncture, I’d stick with the names that are still rich with value if you’re looking to build a foundation for your TFSA.
At writing, I view shares of CN Rail (TSX:CNR) and CIBC (TSX:CM) as nothing short of intriguing at current levels.
CN Rail
Don’t look now, but CNR stock is right back, flirting with new heights at around $174 per share. Undoubtedly, the rail giant seems to be rallying ahead of a potential Canadian recession — one that could prove short-lived and mild.
Though CN Rail has faced more than a few challenges in recent years, the recent quarterly earnings seem more or less what investors have been waiting for.
Even amid macro unknowns, CN Rail is one of the most resilient companies (it’s like a freight train!) in the country, and with impressive leadership steering the top Canadian railway back on track, I’d argue that 20.39 times trailing price to earnings isn’t all too high a price for one of the steadiest earnings growers over the past few decades.
CIBC
CIBC is not a Canadian bank stock you should scratch off your radar just yet — not with shares trading at 11.69 times trailing price to earnings. With a dividend near the 6% mark once again, I would look to the recent year-to-date retreat in the bank as a potential opportunity to nibble into shares. Should the stock retest the lows of last year, I’d not be afraid to nibble just a bit more on the way down.
Of course, the banks will be up against it, especially CIBC, which is a tad heavy on the domestic housing side. In any case, I’d rather own a bank stock when investors are gloomy instead of after a hot relief run. Arguably, the dividend yield is the main reason to prefer CIBC over some of its peers in the Big Six.
