Trump’s massive trade tariffs have stirred the capital markets. Nobody knows how these tariffs will play out. While some say that Trump is using tariffs as a negotiation tool and they are temporary, Trump says he is not going to change his mind. Whatever the outcome, one has to survive the period of uncertainty. Every tunnel has an end. You just have to keep walking in the dark till there is light.
Not investing in market uncertainty and waiting for the outcome has its consequences. The opportunity to buy the dip will be gone while you wait.
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Buy the dip opportunities up for grabs
There are articles about the possible outcome of a shift in the world order, the dollar becoming weaker, and a change in globalization. History has examples of when economies thrived even after a trade order reset. Those who invested in capital markets during uncertainty became millionaires. The question is which opportunity to grab and which to leave.
Are technology stocks a buy at the dip?
One thing that thrived during the trade war, pandemic, and global recession is technology. Technology aims to automate things, reduce costs, and make life comfortable. Most technology companies have low leverage, which gives them financial flexibility to operate at a loss. However, their biggest risk is disrupting technology and falling behind the trend.
Instead of investing in only one company, you can consider investing in the sector with technology ETFs.
- Consider the iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX: XQQ) and the iShares S&P/TSX Capped Information Technology Index ETF (TSX: XIT).
The two ETFs have seen a sharp dip of 16% and 23%, respectively, in the tariff war. The tech sector is seasonal. It tends to fall in the second and third quarters and rise in the fourth and first quarters. This seasonality is due to the holiday season sales, the product launches in the second half, and business contract renewals in the first quarter. The XQQ and XIT dips could be a mix of seasonality and tariff uncertainty.
The XIT ETF has top holdings in Constellation Software and Shopify. Both companies are profitable and market leaders in their space. Buying individual stocks of the two companies could require more than $4,700. However, the XIT ETF can give you exposure to their stock price volatility for less than $60 a unit.
While the XIT ETF gives you exposure to software companies, the XQQ ETF gives you exposure to artificial intelligence (AI) software and hardware trends. Its top three holdings are Apple, Microsoft, and Nvidia, which are redefining AI and how consumers use technology. The two ETFs can diversify your risk and help you invest in the future.
Traditional dividend stocks
Other than technology, the biggest beneficiaries of the trade war are traditional dividend stocks – real estate, utilities, and telecom. These companies rely on the performance of a country’s economy for growth. They enjoy a stable cash flow as they are necessities.
CT REIT (TSX: CRT.UN) is a good dividend stock to buy at the dip because of its robust balance sheet and assured occupancy. The REIT has the advantage of becoming the first right to develop and lease retail stores for Canadian Tire (TSX: CTC.A).
The retailer survived the 2000 dot.com bubble, the 2008–09 Financial Crisis, and the pandemic and grew its business as the economy recovered. Its gas stations give it regular cash flow, and automotive, hardware, sports, leisure, and housewares offerings bring in seasonal sales.
Canadian Tire spun off its real estate assets and created CT REIT. The REIT is not worried about occupancy, as 90% of it is occupied by the parent. The REIT has a small mortgage, which gives it financial flexibility to continue paying dividends even if rental income from other tenants falls. CT REIT has a net asset value of $17.31 and is trading at a discount of 22%.
You can consider buying stocks of both the retailer and its REIT and lock in dividend yields of 4.9% and 6.4%, respectively. These companies can continue paying dividends even in a recession.
