With summer quickly approaching, Canadian investors may wonder which names they can start taking profits in and which to pick up while they’re still relatively cheap. Undoubtedly, many new investors strive to buy low and sell high. But paring your long-term TFSA (Tax-Free Savings Account) or RRSP (Registered Retirement Savings Plan) of winners may not be the best strategy in the world, especially if you’ve got shares of a winner destined to keep on winning.
Indeed, how many times have you rang the register on a hot stock, only to miss out on continued gains after you’ve hit that sell button? Just like Mr. Market has no idea you’ve bought a stock, he has no idea when you’ve sold, and can continue to mark up or mark down prices after you’ve made your move.
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Riding your winners can be a winning move, provided the valuation still makes sense
I think selling winnings can be a questionable strategy, especially if you consider yourself an extremely long-term investor rather than a trader who’s just in it to make a quick buck in a matter of a few months. While I do think long-term investors ought to rebalance by selling frothy names every so often, selling a stock just because it’s up by a certain percentage, I believe, makes less sense.
That said, selling a stock because its market price has soared above your estimate of its intrinsic value (thus making it overvalued) is a wise idea. At the end of the day, it all comes down to how the market’s expectations stack up against your own. A rising stock can still be cheap if the company in question is improving at a fundamental level.
How many times have we heard of a stock that’s gotten cheaper over time?
It’s these companies that can grow into their seemingly high multiples which can be undervalued when looking back. And while such names may be harder to value, I do think selling such perennial overachievers could cause one to miss out on a winner poised to keep winning. In any case, this piece will look at one solid performer still worth buying heading into the summer months.
A stock to buy: Shopify
First on my list, we have e-commerce tech darling Shopify (TSX:SHOP), which has seen shares rocket in the past month, now up 36% in the timespan. Though still well below 52-week highs and more distant all-time highs, I still think the latest melt-up makes the name a great play for investors seeking to ride higher on the back of newfound momentum. The stock is expensive-looking at north of 90 times trailing price-to-earnings (P/E).
That said, I do view the AI beneficiary as a name that’s more than capable of growing into its “frothy” multiple. Indeed, with the firm landing on the Nasdaq exchange, perhaps the Canadian tech titan may be overdue to get more attention from investors south of the border. Either way, I like the long-term growth narrative and would be more inclined to stick with shares than sell them as they continue their hot month-long run.
Once the TSX Index inevitably falters, SHOP stock could be at risk of a pullback. Either way, I’d treat such dips as buying opportunities if you’re committed to holding for the next seven years at a minimum. Shopify’s a special firm and one that could put Canada on the high-tech map, if it hasn’t already!
