Buying high and selling higher might just be harder to do than buying low and selling high. Indeed, it’s tough to tell which TSX stocks can rally in a sustainable fashion and which ones will skyrocket, only to shed a vast majority of the gains in short order. That’s why investors should be mindful of the valuation and how the growth narrative stands to change over time.
Indeed, when it comes to some of the hottest artificial intelligence (AI) stocks, it’s really hard to tell what the future holds. The stakes are high, and if there is, in fact, an “AI bubble” that’s forming, perhaps steering clear of the names that have doubled in less than a year would prove wise. In any case, I think there are a few names that stand to get more undervalued as they continue their bullish rise.
So, if you’re looking to implement a “buy high and sell higher” strategy in today’s market, which is hovering at fresh all-time highs, do take extra precaution and only insist on the growth companies that have valuation metrics that are still not overly inflated relative to historical averages.
Rallies driven by multiple expansion and higher expectations aren’t as exciting to me as the firms that are posting sales and earnings that have been well above analyst estimates. And while a win streak of quarterly beats could turn after one has bought shares, I continue to find the following names great long-term bets. If they plunge, they’re even better bets, in my book.
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Fairfax Financial Holdings
Fairfax Financial Holdings (TSX: FFH) is a premier insurance and investment holding firm that has absolutely skyrocketed in recent years. I’ve been a huge believer in CEO Prem Watsa and his team, even when shares of FFH were in their COVID-era slump. It’s been a smooth, 500% rally in the last five years.
And while the stock has grown a bit more turbulent this year, shares are still sitting on a TSX-beating 22% gain. Indeed, shares were fluctuating wildly earlier in the year, likely because of the explosive rally in the rearview. However, Fairfax continued to find a way to impress with its quarterly numbers. And I don’t think Fairfax is about to turn lower anytime soon, not while seemingly everything is looking up for the firm, from underwriting to investment performance and just about everything in between.
The $54 billion insurance play still doesn’t get much respect despite the stellar fundamentals that only seem to get better with every quarter. With an 8.8 times trailing price to earnings (P/E), the price of admission seems too good to be true. How could you have a multi-bagger with a single-digit P/E ratio?
In my humble opinion, the low valuation multiples don’t seem to make much sense. As Fairfax continues posting stellar numbers, I’d be inclined to stick with the name, even though I don’t like buying after historic rallies. With Fairfax, you’re not just getting momentum, you’re getting a dirt-cheap multiple. Indeed, it’s a rare combination, but one that’s worth backing, especially if you’re getting a powerful management team led by a man who’s known as the Canadian Buffett for a reason. Could the market still be underestimating Watsa?
In short, I think Fairfax is the real deal and it’s worth sticking with given its impressive momentum and the still-depressed P/E ratio. It’s not a value trap or a bull trap; it’s a misunderstood company that I expect to keep rising in the market cap rankings.
