With all the chatter about questionable valuations and the relative lack of market corrections, it’s certainly tempting to sit on one’s hand and keep one’s latest 2024 TFSA (Tax-Free Savings Account) contributions in high-interest savings. As for investing ideas, perhaps put them on ice until the next inevitable 10–20% market drawdown finally does hit.
Indeed, we didn’t have a big one in 2024, and while there’s a good chance one may be in the cards for 2025, there’s also a possibility that those waiting in cash could be stuck in without a market correction to put it to work for another year.
Indeed, valuations have gone up quite a bit, but that alone may not be enough to push stocks into a correction of sorts. Further, the Trump presidency seems to have brought forth a wave of retail enthusiasm. Despite higher share prices, investors seem more than willing to pay an above-average valuation multiple for entry into some of the U.S. markets’ hottest names. Whether that’s a red flag for value investors, though, remains to be seen.
Here in Canada, many names are heating up, but with a greater abundance of deals and yields, I still think there are opportunities to snag a fairly priced stock right now.
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Stop waiting for a correction. Invest and be ready to respond should it happen.
Even if a correction were to begin in the days and weeks after you’ve bought, you can always add to a position on weakness. Further, I think a strong case could be made that the following names could be dealt relatively less damage in case of a painful broader market pullback.
Remember, just because a market is overdue for a correction doesn’t mean it becomes even more overdue in the new year if no crisis has a chance to reveal itself. Of course, when a stock is running hot, the next pullback could be made much more violent once a crisis event finally happens.
In any case, I think it makes sense to consider buying some of the interesting names on the TSX Index before it can heat up further and valuations become that much loftier than they are now, perhaps on the back of bullish new drivers in the new year.
CN Rail
CN Rail (TSX: CNR) stands out as a terrific bargain buy while it’s going for 18.8 times forward price-to-earnings (P/E), with a dividend that’s still close to 2.2%. Indeed, CN Rail has an expansive network that makes it virtually untouchable from potential rivals in the transportation scene.
Despite lingering headwinds, I view CNR stock as a severely undervalued bargain compared to its top peer, CPKC or CP Rail (TSX: CP), which could suffer a drastic valuation reset on the back of potential Trump tariffs.
Either way, I’d much rather be in CNR stock at a considerable discount than CPKC, especially if investors are still overrating and overvaluing CPKC’s U.S.-Canada-Mexico network. I think they are.
Either way, CNR stock stands out as the relatively safer bet as the firm takes steps to drive efficiencies ahead of what could be a comeback year of sorts. Of course, tariffs will still take some wind out of CN’s back. But with lower expectations and relatively less cross-border exposure than CPKC, I’d argue CNR stock is the better, safer bet for new TFSA investors.
