The Trump rally, which has been acting as fuel for stock markets since his presidential victory, could experience a bit of volatility as tariff talks begin. Indeed, tariffs could really weigh heavily on economies around the world. And while they may be used as a negotiation tool for now, everyone should take them very seriously, given their potential impact on jobs, the economy, the price of goods, the strength (or further weakness) of the Canadian dollar, and, of course, common stock prices.
Just because tariffs are a new buzzword does not mean it’s time to overreact. If anything, the volatility caused by any tariff tensions could be an opportunity to buy value stocks at an even lower price. Indeed, if the tariffs are off (a realistic scenario) and a friendly deal can be made, both sides stand to win in a big way! So, if you’re an investor, it’s best to stay the course and be a net buyer of names you believe are unfairly discounted on short-term fluctuations that may be nothing to worry yourself over.
Don’t bet against the financials
At this juncture, I’m a big fan of the financials. While the U.S. financials (think the banks and credit card firms) stand to gain more from a reduction in regulations under the Trump administration, I think the Canadian financials also stand to fare well in the coming years.
Indeed, it’s not just less regulation that has me bullish on financial firms, like insurers and wealth managers, but the low expectations set ahead of them. Add the potential for tech- and AI-driven cost savings as well as a rosier economic outlook should no tariffs actually be implemented come March or April, and I think it’s never been a better time to pursue the gaining financial plays on recent strength.
Great-West: A great, low-cost value pick in the financial scene
Despite recent momentum, the valuations still make sense. In fact, I would argue that valuations are still depressed, given the potential for growth ahead. Consider shares of Great-West Lifeco (TSX:GWO), which recently corrected off recent highs. Now down around 7% from its 2024 peak, I view the incredibly well-run insurance play as a top value pick in the financial scene. At just 12.1 times trailing price to earnings (P/E), with a 4.72% dividend yield, you’re not paying all too much for a rather generous and likely growing payout.
The U.S. business has been quite a star for Great-West lately. While the growth to be had from south of the border is one of the reasons to prefer shares over domestically focused peers, I’m also a fan of the management team running the show. Indeed, they deserve a nice round of applause after a respectable third quarter that I believe investors are pretty much getting for free after the latest slide in shares.
The bottom line
Of course, the financial scene is full of solid value opportunities, but among them, Great-West, I believe, is one of the most underrated. Over the coming two years, I’d look for the firm to hit new highs again as its very promising U.S. growth driver looks to keep the firm’s earnings stream in good shape.
