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?
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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.
