Momentum investing isn’t for the faint of heart, especially in today’s environment where valuations may be a tad on the frothy end in some regions of the tech sector. While AI chips have become just a bit too hot to handle for my personal liking, I do see plenty of value that’s hiding in plain sight across corners of the market that value investors may be overlooking as they wait for some sort of near-term market reversal or valuation reset.
Of course, a correction should always be on the radar of investors, but, at the same time, timing the market can be pretty harmful to your wealth, especially if you’re inclined to stay sidelined for a lengthy period of time, only to give in and buy the same group of stocks at higher prices, perhaps much higher prices. In any case, I think the following blistering stock is worth keeping close watch of as it continues to heat up.
Indeed, the following name appears to be a great buy on the next pullback, although there’s no guarantee that a pullback will occur as we enter a period of seasonal choppiness (August–October tends to be quite choppy for the financial markets). In any case, let’s have a closer look at the name that I think may be worth buying on weakness or on strength if you’re willing to add to a position on weakness going into the midpoint of the third quarter.
Fairfax Financial Holdings
Notably, we have Canadian insurance and holding firm Fairfax Financial Holdings (TSX:FFH), which is one of the most robust momentum stocks in Canada in recent years. Indeed, just a few years ago, I strongly encouraged investors to buy the historic dip, citing CEO Prem Watsa’s proven long-term approach as a reason to give the name, which was viciously sold off, the benefit of the doubt.
The rest, as they say, is history, as the stock went on to soar more than 470% in just five years. And while the red-hot momentum play may be closer to the end of its incredible rally, I do think it has a few more years left in it, especially if the economy stays resilient. The stock looks cheap at 10.2 times trailing price-to-earnings (P/E). And while the broad basket of insurers has been looking up lately, I do think that Fairfax’s incredible top boss in Mr. Watsa makes FFH shares stand above the crowd.
And while it would have been nice to buy a few years back, I still think the fast-flyer is a great buy, especially as it looks to keep flexing its muscles. Will a pullback happen at some point?
Nobody knows. Given the interest rate environment, I’d say FFH stock could continue to go full speed ahead, even as we enter a seasonal rough patch. As Prem Watsa and his team continue to operate and manage efficiently in this climate while seizing value opportunities (like the acquisition of Keg Royalties and Recipe Unlimited), I think the less-than-$55 billion company has what it takes to become a titan in the next 10 years and beyond. Stick with Mr. Watsa, folks!
