The U.S. and Canadian stock markets are bleeding red as businesses and investors are surprised by the moves of policymakers. U.S. President Donald Trump is making bold decisions to impose tariffs on imports from all trade partners to reduce the trade imbalance. However, trade partners are also imposing tariffs on U.S. imports.
What does this mean to investors and businesses?
Those depending on trade with the United States are severely affected. For instance, Trump announced a 90-day pause on April 2 on tariffs for some countries, inviting businesses to push forward their trade and lift up their stock prices before the tariffs hit.
Tariffs lead to a sudden halt in trade in the short term. Many businesses are delaying trades, worrying that their goods may be stopped by customs at the port, demanding tariff payments.
In practice, the importer pays the tariff at the port and passes the cost to customers. But in theory, everyone in the supply chain (manufacturer, exporter, and importer) negotiates and bears some costs. One requires clarity on the tariff to determine the next course of action. Constant policy changes make it expensive to import and export goods between Eurasia and the United States. One has to cross the ocean to deliver the goods.
In response, businesses pause spending and don’t give guidance until the policies are clear. Since businesses do not share a clear picture, investors hold onto cash or panic sell.
It’s time to buy the dip now and reap the rewards later
Such market fluctuations are beyond the control of any business. However, a smart investor uses these fluctuations to their advantage and buys the dip of strong stocks, which are only falling because of market fear. They have the potential to bounce back when the market recovers.
Which are those stocks?
- They are the ones facing the indirect impact of tariffs.
- They are the companies that cater to necessities like power and telecommunications.
- They are the companies that have a moat in the market.
BCE stock
BCE (TSX:BCE) is a stock to buy during the current dip and reap rewards later. The current dip is in response to the company’s $40 billion net debt, impairment, and other one-time costs from a company-wide restructuring, a regulatory change that has removed the exclusive right to its fibre infrastructure. The dip is also because of the dividend payout ratio of over 100% for five consecutive years, and a difficult economic environment that could slow its acquisitionsand the sale of non-core businesses.
However, the company has a moat in the form of state-of-the-art 5G infrastructure built on Canada’s vast lands. This infrastructure is expensive to build. Even if small competitors get access to BCE’s infrastructure, there will be a difference in quality. Nobody can take away this moat from BCE, which means the company will thrive.
Now for the reward. BCE’s restructuring from telco to techno is a forward-thinking approach whereby 5G will make artificial intelligence (AI) and virtual reality at the edge possible. The future of autonomous cars, drone deliveries, and AI-driven security cameras will be supported by the network infrastructure.
BCE is looking to tap this opportunity by entering the cloud business, cybersecurity for a secure connection, business technology solutions, and digital media. These new revenue streams, in addition to the internet and wireless subscriptions, could reward BCE investors with strong dividend growth.
BCE stock has fallen another 20% in a month and is closer to its June 2009 low, the time of the Great Recession. BCE’s moat of fibre infrastructure and its low exposure to global trade make it a stock to buy the dip and lock in a 13.6% yield. Even if BCE halves its dividends, a 7% yield is better in these challenging times and will reap 5–7% dividend growth later.
Other stocks investors can buy at the dip
Nvidia is another stock to buy on the dip. Nvidia’s graphics processing units (GPUs) are the most powerful in the world and a necessity for AI. If these GPUs are made in America and exported, Nvidia might reduce its profit margins to encourage others to buy its products. And Nvidia has ample flexibility with its 57% net margin in FY25.
