It’s hard to believe that we’re just a month and a half away from closing the books on the first half of 2025. With Trump tariffs and recession jitters weighing heavily on sentiment for the spring, questions linger as to what the second half could hold. Even though we’re in the de-escalation phase of Trump’s tariff war with the world, investors shouldn’t expect zero tariffs to be coming anytime soon.
Indeed, 10% may very well be the floor unless, of course, some sort of special deal can be inked. In any case, patience and a strong stomach will probably be needed as the TSX Index hits new highs right ahead of summer.
While it seems easier to put new money into stocks now that the broad basket of Canadian names has a good amount of positive momentum behind them, I’d encourage investors not to overreact by getting back into the risk trade. Instead, focus on undervalued stocks that could fare well should tariffs cause stocks to feel weighed down again.
In this piece, we’ll look at two surging TSX stocks that seem like a must-watch as Canadian markets look to have a more promising second half of the year.
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Dollarama
Dollarama (TSX:DOL) stock may look a tad out of reach after melting up this year over tariff and inflation fears. As the TSX Index blasts off to new highs, I’d be inclined to take a bit of profit off the table with the intent of getting back in, should a pullback be in the cards. The way things have been going, I’d not be surprised if investors rotate from value and back into growth again.
Either way, 32.7 times forward price to earnings (P/E) seems a tad too rich for my liking, even though I’m a huge fan of the growth narrative. Indeed, few retailers can offer the same attractive deals as Dollarama.
And while I do not doubt that its new stores will succeed as it moves ahead with its national expansion, expectations seem a tad high going into the coming quarters. If they prove too high, perhaps investors will have an opportunity to buy closer to the $150 level. For now, I think there are better places to play defence that don’t require one to pay too hefty a growth multiple.
Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) is another red-hot TSX stock that may be worth chasing going into the second half. Unlike Dollarama, which is on the pricier side of its range, Fairfax stock still looks like a bargain at 9.3 times trailing price to earnings (P/E). Indeed, the stock has seemingly become cheaper as it’s appreciated.
And while the Prem Watsa-led insurance and investment holding company will eventually fall under pressure again, I’m starting to think that any moments of sideways action are more of a buying opportunity than a signal to sell. Indeed, FFH stock stands out as one of those stocks to just buy, hold, and forget about. Over the past five years, shares have blasted off more than 540%.
After such an extraordinary run, I think it’s safe to say that Prem Watsa is more than deserving of the title of “Canada’s Warren Buffett.” The easy money may have already been made, but until shares get markedly pricier, I’d not look to hit that sell button. Not while the firm’s underlying fundamentals continue to improve. Looking back, it’s clear that it was a mistake for investors to discount Watsa’s abilities.
