Chasing hot stocks can be risky, especially if you’re feeling a sense of FOMO (the fear of missing out). It certainly does not feel good to sit out from a stock that’s gone up by double or even triple-digit percentage points over a rather concise period. Though punching your ticket after a run could lead to more significant downside risks come the inevitable correction, especially if a stock has run up above and beyond what it should be worth, stocks with momentum behind them aren’t necessarily overvalued.
In fact, in the market, there are many intriguing cheap stocks that just so happen to have newfound momentum behind them. And as their fundamentals improve (along with the macro environment), I think they are more than buyable on the way up, even if it means getting caught with bigger bumps in the road over the near term.
While I’d not be against buying a full position at today’s valuations, I find that building positions over time tends to be a less jittery way for new investors to go after a stock.
Additionally, you’ll likely be inclined to stick on the sidelines on any given day, telling yourself that a pullback will worsen, providing you a chance to get in at better prices. Timing the market is hard. And it’s far easier (not to mention a heck of a lot less stressful) to take timing out of the equation by entering a position over time. Indeed, many big-name investors, including Warren Buffett, build into positions over time rather than deploying capital all in one go.
North West Company
Retailing can be a really tough place to thrive unless you’ve got seasoned managers who know how to navigate harsh environments effectively. North West Company (TSX: NWC) is a lesser-known retailer with a $2.4 billion market cap that operates in remote parts of Canada and the United States. Amid inflation, the staples-like retailers have been faring quite well.
North West is one of them, with shares rising an astounding 28% year to date — a rally after NWC shares consolidated for several years. I think the breakout has legs as North West looks to pursue efforts to grow.
The stock trades at 18.45 times trailing price to earnings (P/E), with a 3.11% dividend yield. Also, it’s a defensive dividend play (0.64 beta, which entails lower market risk) that can withstand corrections and severe pullbacks. Shares may be near highs, but the name is anything but expensive here!
Manulife Financial
Manulife Financial (TSX: MFC) is another Canadian dividend payer that’s enjoying a breakout moment. At just shy of $40 per share, MFC stock is up an incredible 37% so far this year! Indeed, the life insurance play’s moment in the sun may not be over with, either.
The company’s core earnings growth engines seem to be firing on all cylinders, even amid macro pressures. I think that’s a testament to the calibre of management. Even as MFC eyes new highs, the stock remains cheap at 16.9 times trailing P/E. And, of course, there’s a nice 4% dividend yield to enjoy for your time.
