A market correction can never be ruled out, even when it seems like there’s a Goldilocks setup for the road ahead. Undoubtedly, perhaps it’s times when it seems all is well, and it’s only up from here that investors should be ready to reduce risk.
Indeed, it’s tough not to get just a bit ahead of your skis in the midst of a roaring bull market when it seems like stocks can only climb higher by the day and week. Indeed, after such furious melt-up types of rallies, it can be really easy to forget what it’s like to have a really bad day. The past few weeks have been a massive wake-up call for new investors, many of whom may have gone too heavy in semiconductor stocks.
Chasing hot trends of themes is not value investing!
Sure, generative artificial intelligence (AI) will change the world as we know it. And it’s probably going to lead to artificial general intelligence (AGI) at some point down the road. Whether AGI is achieved in the next three years or the next three decades, it’s clear that everybody seeking growth should seek to expose themselves to the growth-driving revolutionary force that is AI.
When we seek to bet on various AI stocks, though, we must always be mindful of valuations. It doesn’t matter if it’s the world’s finest chip maker that’s experiencing generational demand; if the price does not make sense, buying shares could lead to losses, perhaps huge losses, as the turn tides.
Now that tech stocks are in (or at least very close to) a correction, which is defined as a drop of 10% from peak to trough, investors may be wondering if now is a good time to buy the dip. Undoubtedly, a double-digit percentage discount from peak levels is pretty good, right?
Though the 10-30% discounts on certain stocks may be buyable, investors should look for quality merchandise that’s been thrown in the penalty box rather than overvalued stocks that are now fairly valued after correcting.
Heck, some of the recently corrected may still prove expensive right here! That’s why staying with value could prove a smart strategy right here as we play a U.S. market’s sell-off that’s dragged over to the Canadian indices of late, with the TSX Index off around 1.7% on a brutal Thursday session.
Constellation Software
Constellation Software (TSX:CSU) is a diversified Canadian software firm that’s been known to have an eye for talent in the small-cap software waters. The stock got caught in a brutal downdraft, shedding more than 4% of its value on Thursday on seemingly no bad news.
Indeed, Constellation stock is falling because the tech sector is a treacherous place to be right now. Fortunately, I view the dip as a tremendous buying opportunity ahead of coming earnings, which I think could be better than expected.
Of course, the $88.5 billion firm has a high multiple at just shy of 40 times forward price to earnings (P/E).
Either way, given the firm’s growth advantage, I find it to be a great buy while it’s down close to 7% from its all-time high. If shares fall below $4,000 per share, perhaps it’s time to seriously consider buying a share. Indeed, whenever you have such a high share price, one share can go a long way!
