New investors shouldn’t let sudden moves in the stock markets get to their emotions. With such a strong start to the month of February, as tech earnings season injects a bit of euphoria into the hearts of some investors, it’s certainly tempting to chase what’s hot again in the tech scene right now.
Indeed, chasing momentum can end in tears, especially if you pay zero attention to the fundamentals. At the end of the day, valuations matter, even in the high-tech world of artificial intelligence (AI) and the so-called metaverse. In 2022, many new investors learned the pitfalls of chasing hot stocks without paying careful attention to the price paid.
In this piece, we’ll check out a duo of simple stocks that can help you kickstart your TFSA (Tax-Free Savings Account) wealth-building journey. The following plays, I believe, are terrific to hang onto for years (or, if you have the investment horizon, decades) at a time. Let’s check out the names.
Microsoft
Microsoft (NASDAQ: MSFT) is the legendary tech titan that keeps finding new ways to grow its top and bottom line. With plenty of AI innovation going on, it’s no mystery as to why the stock has been scorching hot in the past year, rising nearly 60% over the timespan. Despite the hot AI-driven pop, however, MSFT shares are up only 20% from their 2021 peak.
Undoubtedly, when you look at Microsoft through the long-term chart, shares don’t seem all that bubbly when you consider the impressive large language models (LLMs) being built in the background. With CoPilot and a budding partnership with OpenAI, Microsoft is a $3.05 trillion mega-cap that’s likely a must-own for any portfolio aimed at outperforming over the long haul. It’s now the world’s largest company, and it’s thanks in part to generative AI and the incredible stewardship of its chief executive officer (CEO), Satya Nadella.
Though the exchange rate isn’t great, Canadian investors may wish to consider watching the stock as a top U.S. AI play after its latest applaud-worthy quarterly result. The numbers were another win for Microsoft. And more could be in the cards in the near future!
Of course, it’d be nice to have gotten MSFT stock at a lower multiple (let’s say closer to 25-30 times price-to-earnings). However, I’d argue 37.2 times trailing price to earnings isn’t all too absurd, given its earnings growth prospects.
CP Rail
Up next, we have railway giant CP Rail (TSX: CP), which could be nearing a breakout, with shares now going for $112 and change. Indeed, the railroad stock could really benefit as the North American economy gets running back to full speed. I have no idea when it will happen, but it’s less of a concern if you’re going to be in the name for at least five years.
The stock goes for 26.6 times trailing price to earnings, with a 0.68% yield. It’s not a low price to pay for a stock that’s not exactly bountiful on the dividend front. Regardless, I like the firm as a (dividend) growth play for the next 10 years and beyond. The rail network looks virtually unmatched following the Kansas City Southern deal — an asset that could pay major dividends for decades to come!
