Canadian investors should look to invest in the types of stocks that will pay them for their patience. Undoubtedly, pursuing capital gains can pay off richly over a short time span. That said, it’s important to be realistic about the total returns expected in the near and distant future.
Indeed, the TSX Index was up an impressive 22% (so far) year to date. And while the rally probably won’t come to a close come the new year, I wouldn’t expect such hot gains to carry over by next year’s holiday season. Indeed, the TSX Index was overdue for a moment like this.
But with valuations somewhat higher and a new slate of risks that could pop up from out of nowhere (think Trump’s proposed 25% tariffs on Canadian goods), investors would be wise to play the long game and take advantage of the bumps that are bound to be in the road after a prosperous year on Bay Street.
Undoubtedly, the risks of a tit-for-tat trade war could rise in 2025. And with the loonie in an incredibly bad spot (could it fall below US$70 next year?), the Bank of Canada’s hands may very well be tied. Indeed, not only could a rate pause be on the table, but I wouldn’t be all too surprised if a few hikes were considered if a trade war were to intensify in the new year.
Despite the potential for upped turbulence in 2025, I’d stick by the steady, low-cost dividend payers, ones that can continue paying investors for their time and patience. Here’s one of the cheapest ones I’d look at amid rising headwinds:
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Magna International
Top-notch auto-part maker Magna International (TSX:MG) saw its shares shed close to 5% in a single day following news of Donald Trump’s plans to sign an executive order that would apply a 25% tariff on goods moving from Canada to the U.S. Indeed, that’s a hefty tariff and one that could precede an ugly tit-for-tat trade war. For Magna, such tariffs could act as salt in the wounds of a company that’s already in a challenging spot.
Just a few weeks ago, the firm lowered its guidance as production came in cool. The business of auto parts is incredibly cyclical and if a 25% tariff comes to be, the stock could easily take more hits to the chin. In any case, if you’re a long-term investor, MG shares stand out as seriously undervalued.
With a nice 4.1% dividend yield and a mere 7.7 times forward price-to-earnings (P/E) multiple, investors stand to get pretty deep value from a name that’s lost more than half of its value from peak levels. Given the tariff risks, I’d look to buy the name on the way down rather than loading up today in the face of profound uncertainties.
As negotiations kick off in the next two months before Trump’s inauguration, perhaps there’s a chance tariffs could be lowered, limited, or perhaps scrapped altogether. In such a scenario, MG stock may have what it takes to regain ground. Either way, the stock is sure to be an extremely volatile play that won’t be for the faint of heart.
