Will the rally in Canadian stocks continue in 2025? That’s the top question on the minds of many market participants as we enter the final few weeks of 2024 and the start of a potential Santa Claus rally. Of course, a Santa rally is hoped for but never guaranteed, especially if some black swan event appears from out of nowhere. Either way, the stage does look set for a continuation of this rally going into the festive season.
With investor risk appetites rising, robust momentum behind a broad range of Canadian and U.S. stocks, and excitement about new generative artificial intelligence (gen AI) products and their potential to help companies grow into the multiples over the next 18 months, it’s hard not to feel upbeat this time of year, even if valuations are a tad on the high end.
With so many potential earnings-driving catalysts (could 2025 be the year gen AI starts powering corporate sales growth in a way that justifies above-average valuation metrics?), I think it’s risky to be stuck on the sidelines with too much cash and too few investment ideas.
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Jittery about valuations? Consider Canada’s cheap dividend payers
Though it’s probably not the best idea to load up on the hottest momentum stock tied to the gen AI revolution at any price, I think there are areas of the market that can hold their own should the bear come knocking at some point next year. Indeed, even a hot stock market with numerous catalysts can be at risk of falling into a correction (that’s a 10% decline from the top).
Either way, investors worried about buying at a top may wish to check out some of the cheaper Canadian stocks on this side of the border. Some of the names have share price and earnings momentum along with price-to-earnings (P/E) ratios that are easier to get behind.
Now, you’re probably not going to score a market bargain with the TSX Index and S&P 500 looking to finish 2024 with even more gains in a Santa rally type of scenario. But, at the very least, you could grab some high-quality merchandise at fair multiples. In an arguably pricey market, getting quality for an okay price isn’t too bad, especially if you’ve been waiting all year for a correction to hit.
Bank of Montreal stock: A blue-chip bargain with momentum after its latest earnings
Though there are plenty of Canadian stocks that are heating up, few of them, I believe, are as enticing as Bank of Montreal (TSX:BMO), which recently popped on the back of its latest round of earnings results. Now, the results weren’t incredible, but they held up well in light of industry headwinds that have weighed down the broader basket of bank stocks at the start of the year.
The bank’s credit concerns could fade big time come the new year. Indeed, there are already subtle signs that Bank of Montreal is already getting back on the right track. As analysts rush to upgrade their price targets again, I’d not sleep on the name.
Not with new all-time highs in sight after last week’s nice 7% pop. At 15.0 times trailing P/E, with a 4.62% dividend yield, you’re getting a good amount of upside momentum alongside a multiple that still looks cheap, given the brighter environment that could be up ahead. I think Bank of Montreal is back. As credit concerns fade and loan growth returns to the driver’s seat, I’d look for the name to hit new highs (just 4% away) sooner rather than later.
