The TSX Index summer rally just can’t seem to be stopped, with strength continuing into the month of September. And while those fearing the so-called “September effect,” which typically entails a seasonal rise in volatility and profit-taking, may not be out of the woods yet as we pass the midpoint of the month, I think that the upside risks (the risk of missing out on continued upside from the current bull market) of timing the markets over the short-term are becoming more apparent to new investors, many of whom may forego many months, quarters, or even years worth of capital appreciation and dividends due to fear of momentum itself.
In any case, let’s look at two strong performers that I still think are worth buying. And while the price of admission doesn’t entail deep value, I think that there’s no shame in paying a fair price for a company that has a good chance of continuing to deliver.
Bank of Montreal
The great bank rally continues to roll on, and Bank of Montreal (TSX:BMO) stock is making the most of it. Shares have rallied over 51% in a year, which is excessive, to say the least. While such a pace of gains is unsustainable, especially now that expectations have risen after a few better-than-expected numbers, I think that it’s too early to throw in the towel on the bank trade.
If the Bank of Canada continues cutting interest rates through the winter, Bank of Montreal and the rest of the banking cohort could be in for quite a rise in loan growth. Indeed, in such an environment, we could witness strength right across the board, from the capital markets business to commercial banking and even the exchange-traded fund business.
All considered, BMO stock looks to be trading at a fair price for a business that seems to be firing on all cylinders. At 13.2 times forward price-to-earnings (P/E), you really can’t say BMO is an expensive stock, especially if management can keep delivering in the face of some higher expectations.
At this juncture, I believe expectations remain relatively modest, especially considering the recession risk ahead and how some CEOs have been confident, yet not complacent, in the face of macroeconomic risks. As long as corporate earnings stay strong, I think BMO is bound to keep delivering, even if consumer-facing pressures mount in the new year.
IA Financial
IA Financial (TSX:IAG) is another intriguing financial stock that’s had its way this year. The insurer may be smaller than its peers ($14.4 billion market cap), but it’s proven time and time again that it’s an excellent risk manager. With a few strong quarters in the books and impressive return on equity numbers, I certainly wouldn’t bet against the name, even though it is up over 83% in two years, with a forward P/E multiple that, believe it or not, is on the higher side of the historical range at 11.55 times forward P/E.
Though IAG stock doesn’t go for a single-digit P/E anymore, it still trades at a nice discount to many of its peers despite posting numbers that have arguably been more impressive. With such a strong management team, perhaps IA is a smaller player that can keep making larger waves for years to come. For now, investors can collect the 2.55%-yield dividend as they await a continuation of this great multi-year rally.
