September was really never the best month for stock returns, but this year has proven relatively steady. With modest levels of volatility and potential for summer strength to continue through this volatile month, perhaps there was nothing for investors to fear other than the “September effect” headlines themselves.
Does that mean it’s time to be complacent and buy stocks despite stretched multiples? Of course not! Market valuations are getting up there, and while it’s not in bubble territory yet, at least in my very humble opinion, you don’t need a bubbly market to get a fairly nasty correction. Though we’re not necessarily overdue for another correction since the post-Liberation Day sell-off caused a bit of a panic back in Spring, I do think that being ready to ride out the road bumps is a good idea.
That may not entail dumping shares of your biggest year-to-date winners. However, it may mean being just a bit more selective with the stocks you choose to put new money to work in. Chasing high-flyers at fresh all-time highs may not be the most ideal move in this climate, especially since we’ve witnessed a lot of speculative activity this year, with meme stocks heating up and all these crypto-related IPOs popping up. In any case, this piece will explore two stocks that I think are still cheap and could have what it takes to finish off the year with a bang!
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) stock has been off to the races in the past six months, gaining close to 28%, with 15% of the gains coming in the past month. Despite the sudden melt-up driven by remarkable quarterly earnings results, shares of BNS aren’t making new all-time highs as much as its Big Six peers are right now.
I think it’s just a matter of time before BNS stock makes new highs of its own, and I wouldn’t be surprised if the internationally focused Canadian bank were to break out in the fourth quarter. Today, the stock is off around 6% from its highs.
With a juicy 5% dividend yield and a modest 11.1 times forward price-to-earnings (P/E) multiple (cheap!), I think a breakout could be in the cards sooner than most investors think! So, if you’re late to the banking rally, perhaps BNS could make for a terrific catch-up trade right here. Ideally, though, I’d hold the stock for the long term, given the incredible dividend, which is poised for continued growth.
Enbridge
Enbridge (TSX: ENB) stock is rewarding investors for their patience, not just with generous dividend hikes, but also with huge gains posted in the past few years. Over the past two years, ENB stock has been up more than 45%. And while the dividend yield has shrunk down to 5.6% (it used to be over 7%), I still see plenty of reason to pick up shares of the hot pipeline play as the firm looks to hit the $150 billion market cap mark.
With the green light to move forward with a pair of natural gas projects, I do see more spoils in store for investors down the road. Indeed, Enbridge is an absolute cash cow, and it’s one that could continue to rocket higher as the Bank of Canada and U.S. Federal Reserve slash rates over the next year. Lower rates would give ENB stock a huge boost, as risk-free yields become even less rewarding. At $66 and change, I like ENB as a year-end breakout play. The midstream energy giant is back, and it’s not done yet!
