I’d Wait to Buy This Hot Stock

Waste Connections (TSX:WCN) stock is a darling after its latest post-earnings pop, but shares still seem too pricey.

| More on:
think thought consider

Image source: Getty Images

Whenever stocks have been on an unforgettable run, it can pay to take a few steps back to consider what (other than investor sentiment) has changed. Indeed, the recent inflation numbers from the U.S. were higher than expected. And that could curb the rate-cut expectations of investors and various market strategists. That said, when you think longer term, I don’t think it really matters whether the first round of cuts will be a few months later.

Additionally, it seems like too many folks out there are underestimating inflation’s stickiness. The genie seems to be on his way back into the bottle. But does that mean he’s been put away for good to remain dormant for the next decade or more?

Market valuations are climbing, but so many wonderful businesses are out there!

Probably not. If anything, investors shouldn’t just be open to delayed rate cuts (perhaps by a few months or quarters) but the potential for another surprise rate hike. Indeed, such a move would probably cause markets to feel immense pain. However, if that’s what it takes in order to get rid of pesky inflation for good, then so be it! In any case, I have no idea what the Bank of Canada or the U.S. Federal Reserve will do next and when they’ll do it. For now, I think holding off on rate cuts remains the prudent thing to do.

However, the odds of a rate hike are low from here, given the pace of layoffs hitting the tech sector (and more to come, perhaps in the financial sector).

In this piece, we’ll have a brief look at two stocks I’d watch closely and perhaps wait to buy after a market correction. Though a correction may or may not hit in the first half, I still think the following are better to watch than buy at this juncture. In short, they’re great businesses, but the valuation seems just a tad more elevated than I’d prefer as a value investor.

Waste Connections

Waste Connections (TSX:WCN) isn’t going to appeal to the artificial intelligence-chasing crowd out there. However, after its recent melt-up to $222 and change per share, I think the momentum investors have a lot to love about the name. It’s a boring company in a gross industry, but it’s profitable, defensive, and even growthy.

Personally, I think the stock’s recent bounce is warranted, given how impressive the company’s quarterly earnings results were. The stock trades at 51.5 times trailing price to earnings, with a 0.73% dividend yield. As a dividend growth gem that can fare well through most economic environments, I’m tempted to buy a few shares, even at these heights. It’s a wonderful wide-moat company worthy of a premium price tag.

However, I just wish a pullback would create an entry point closer to the $200 range. If markets take a hit this year, perhaps investors will get another shot to pick up WCN shares, perhaps with the latest quarterly result coming for free. Either way, I’d look for a pullback to $200 as a potential area to enter the name for a long-term position.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Supermarket aisle with empty green shopping cart
Dividend Stocks

Is Now the Right Time to Buy Dollarama Stock?

Dollarama stock trades at a fair valuation despite its market-thumping gains in the past decade. Is the TSX stock still…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

2 Growth Stocks That Could Turn $1,000 Into $10,000 by 2034

Growth stocks such as Tidewater and UiPath can help you turn a $1,000 investment into $10,000 in the next 10…

Read more »

tsx today
Stock Market

TSX Today: What Could Drive Canadian Stocks to a New High on Monday, April 1

After posting five winning months, the main TSX index could kick off April on a high note as rallying gold…

Read more »

Growing plant shoots on coins

This Growth Stock Has Market-Beating Potential

Here's why Restaurant Brands (TSX:QSR) remains the top TSX growth stock long-term investors should consider for big gains.

Read more »

protect, safe, trust
Dividend Stocks

How to Earn Safe Dividends With Just $10,000

Earn reliable income with relatively safe stocks like Fortis.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 Dividend Stocks to Beat Inflation

These two TSX dividend stocks can be excellent holdings to beat inflation, even as inflation cools down.

Read more »

dividends grow over time
Dividend Stocks

TFSA: Invest $20,000 and Get $860/Year of Predictable Passive Income

Looking for safe passive income that will grow and build wealth inside your TFSA. Check out this four-stock portfolio of…

Read more »

Increasing yield
Dividend Stocks

3 Overlooked High-Yielding Dividend Stocks to Buy Right Now

These three dividend stocks are excellent buys, given their discounted prices and high yields.

Read more »