Beginner investors may be enticed by some of the stock market’s fastest movers and highest flyers. And many may be inclined to punch their ticket without conducting a thorough analysis. Indeed, sheer momentum may be enough of a reason for some to buy a stock. If the price has only shot higher over the course of many months or quarters, one may think the odds of further gains are on their side.
Undoubtedly, many new investors may learn the hard way the consequences of getting in too late on a hot trade, one that may have overshot its true worth. Momentum can turn without much notice, leaving many investors scarred and unlikely to return to the market waters anytime soon.
Indeed, chasing stocks (or momentum investing) may be popular among young investors hungry for quick results. That said, such hot plays accompany a great deal of risk. And it’s this magnitude of risk that new investors may not know they’ll be bearing.
New investors, stop chasing! Start insisting on great value for wide moats!
That’s why it’s always a good idea to think longer term and expect some pretty ugly bumps in the road (perhaps immediately after one has bought into a sizeable stake) over the near- to medium-term. Indeed, when you hope for a chance to pick up more shares at lower prices, even after you’ve made your initial purchase, you may be thinking like a true, long-term investor rather than a trader.
Many new investors may incorporate a dollar-cost averaging approach (which entails gradually buying partial positions over some timeframe) to remove the “timing factor” from the equation.
Averaging down: Time timing the market out of the equation!
While averaging into a full position over many months or years may not be the best strategy (especially if the stock in question proceeds to surge without experiencing any sort of painful pullback), I am a fan of the move for jittery investors who want a means to better handle the emotional turbulence that comes with investing a great deal of money.
In any case, here is one stock that I believe is worth pursuing as they come in after surging considerably in recent years. While there’s no telling when they’ll hit bottom and ricochet higher again, I do view each as an exceptional value for those seeking a good amount of long-term momentum and a slight hint of value.
CPKC Rail (CP Kansas City): Time to buy the correction?
CP Rail (TSX: CP), or Canadian Pacific Kansas City (CPKC), is an exceptionally well-run railroad stock (led by a great CEO in Keith Creel) that I would not hesitate to buy shares of on a correction. Recently, the company reported some pretty muted earnings, causing shares to pull back swiftly (down just north of 10% from its high) into correction territory.
Indeed, the quarter saw some less-than-impressive margins. But with the company still playing the long game while looking to extract further value from its Kansas City Southern assets, I’d stand by the stock on the way down. At $110 and change and 26.5 times trailing price-to-earnings (P/E), CPKC stands out as an intriguing low-cost, wide-moat type of play for new investors who seek steady appreciation (stock gains) and dividend growth over the span of many years.
Only time will tell if shares fall below $100 again. Either way, new investors should hope that the stock sags to such levels, even after they’ve bought!
