The U.S. stock market is getting a tad hot going into 2025. For some, it may be a tad too hot to handle, at least for the most part. And though there has been chatter of the artificial intelligence (AI) boom ending in some sort of massive bubble bursting, I think we’re far away from any sort of bubble.
That said, I think a good 10-25% correction would do this bull market a lot of good, as some of the froth is taken out of some of the more euphoric corners of the stock market. Indeed, just check the top 10 performers in the S&P 500 list, and you’ll see that some of the gains are concentrated in just a handful of names.
Either way, I don’t think investors should hit the panic button over a correction, pullback, or bursting of the bubble just because 2025 has been a rather rocky start for stocks. That’s not to say you should ignore the big names who are urging investors to exercise just a bit more caution.
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Be cautious with overvalued names. Stick with value!
Recently, Oaktree’s Howard Marks noted elevated valuations and that they should not be ignored just because there’s an artificial intelligence (AI) boom on the horizon. Though I respect Marks, only time will tell if AI actually translates to profitability growth in the near term. Indeed, such growth could justify extended valuations and keep stocks going without having to end in any sort of tears.
So, where should investors look for value in this new year? I think the U.S. tech names are somewhat frothy. Here in Canada, your average TSX stock is far from being overvalued. In fact, some quality names are trading at huge discounts to their historical averages, making them great bets if you’re in the belief that the next market sell-off will see a flock of investors dump growth for those value names.
If you’re bullish on value (as opposed to growth, especially AI-driven growth), Canadian stocks are where you’ll want to look. And with the loonie limping into 2025, there’s never been a better time to skew Canadian over American or even international with your next big stock purchase.
Restaurant Brands: A steep bargain to pick up today
Consider shares of Restaurant Brands International (TSX: QSR), which recently slipped to around 52-week lows at $90 and change per share. Indeed, the fast-food firm behind beloved brands like Burger King, Tim Hortons, and Popeyes Louisiana Kitchen looks severely undervalued after taking a beating last year.
At a mere 15.7 times trailing price to earnings (P/E), I’d argue that the defensive dividend grower is an absolute bargain hiding in plain sight. Indeed, it’s close to the cheapest I’ve seen the name in many years. And though there are quite a few challenges in store in 2025, as consumers continue to seek the best value menus, I still think it’s a good idea to pick up the name while it’s down.
At the end of the day, the cash cow has wonderful brands and the means to pick up serious traction in international markets. Sure, the latest quarterly numbers were rough. But the long-term narrative is still very much in play. For those willing to ride out the storm, there could be significant and lowly correlated gains in store for 2025.
