Market volatility is an inevitable part of investing. Whether driven by economic shifts, geopolitical tensions, or other uncertainties, it can be unsettling for investors. Recently, the U.S.-Canada trade tensions and other global events have heightened volatility, leaving many wondering how to navigate these unpredictable waters. For Canadian investors, market volatility presents an opportunity to turn uncertainty into profit — if approached with the right strategy. Here’s how to leverage market swings to your advantage.
1. Focus on resilient, high-quality companies
One of the best ways to capitalize on market volatility is to identify businesses that are less sensitive to the factors driving the uncertainty. Solid companies with strong fundamentals are often the most well-positioned to weather the storm. Rather than trying to time the market, investors can look for opportunities to buy partial positions in high-quality companies when the stock price dips.
Take CGI Inc. (TSX:GIB.A), for example. As one of Canada’s largest IT and business consulting firms, CGI offers a diversified and stable revenue stream, supported by long-term contracts with government and corporate clients. The company’s strong cash flow, paired with its ability to grow through strategic acquisitions and organic expansion, makes it a prime candidate for long-term investors. With about 12 consecutive years of dividend increases and a solid 7.6% dividend growth rate over the last decade, CGI offers both capital appreciation and growing income generation – traits that are crucial in volatile markets.
2. Look for value during market corrections
Market pullbacks often create opportunities to purchase quality stocks at discounted prices. For example, CGI stock recently declined by 19% from its 52-week high, but it has still delivered an average annual return of about 10% over the last decade, outperforming the Canadian stock market’s 8.8% return during that period. When buying during these dips, investors have the chance to lock in attractive valuations.
At $141.32 per share at the time of writing, CGI is trading at a blended price-to-earnings (P/E) ratio of about 17.7. This is a reasonable valuation compared to its historical levels, and analysts believe the stock is trading at a 21% discount, with nearly 27% near-term upside potential.
In fact, history shows that market corrections can bring high-quality stocks like CGI to more compelling valuations. During the 2020 market crash, CGI’s stock fell by approximately 38%, but its earnings only dipped slightly — demonstrating its resilience even in the toughest of times.
3. Build a diversified portfolio to withstand market shifts
While individual stock picking can offer great rewards, it’s important for investors to maintain a diversified portfolio to manage risk. This includes a mix of stocks, bonds, and other asset classes. A diversified portfolio, populated with solid businesses across various industries and sectors, is better equipped to withstand the shake-ups that come with market volatility.
Moreover, sectors tend to perform differently at various times, so diversification ensures that even if one industry is hit hard, other sectors can help balance the portfolio’s performance. By maintaining exposure to a range of high-quality companies across different industries, you can reduce the overall risk in your portfolio while taking advantage of opportunities when markets correct.
The Foolish investor takeaway: Turning volatility into opportunity
Volatile markets are not a reason to panic but an opportunity to build wealth over the long term. By focusing on resilient companies like CGI, capitalizing on dips, and maintaining a diversified portfolio, Canadian investors can turn market uncertainty into profit. The key is patience, strategy, and the ability to identify quality businesses that can thrive in the long run.
