In 2025 alone, the S&P/TSX Index has risen by 21%. In the last five years, it has risen by 94%. That’s an almost 100% return, a doubling of the market in the last five years. It’s been a time of tremendous wealth creation. And investors have gladly hung on for the ride.
But given this, what should we do now? Should we withdraw from the market and take a breather, or should we remain invested and even be buying some more?
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Adjusting your exposure
After that spectacular run, the TSX Index is currently trading around all-time highs, closing at $30,186 yesterday.
While it has been a pretty amazing run, this is something that makes me a little bit concerned and cautious. I mean, valuations are stretched and there are problems in the economy. Prime Minister Carney has been highlighting trade tensions with the US and uncertainties related to this. He has also been highlighting the cracks in the economy and the need for Canada to build a stronger one.
Personally, I have been taking all of this in and it has caused me to reduce my equity weighting in my portfolio, in favour of adding to my fixed income weighting. But while I believe that we should prepare ourselves for a possible pullback, I also believe that if we position ourselves in the right stocks with the right weightings, there’s still the potential for good returns.
The stocks that I’m favouring continue to be those stocks that are undervalued. It’s also those stocks that serve an essential need. I’ll spend the rest of this article going over some examples.
Undervalued stocks
Cineplex Inc. (TSX:CGX) is Canada’s leading film exhibition and entertainment company. There are a few things I really like about Cineplex stock. The first is that investors have such low expectations for the company – and this is what is priced into the stock. The second is that Cineplex has made good progress in strengthening its balance sheet.
Finally, I’ll point to the company’s latest quarterly result, where revenue increased 30% to $361.8 million and operating cash flow (excluding working capital) more than doubled to $44 million.
Cineplex stock is currently trading at 18 times 2026’s consensus earnings estimate and 16 times 2027’s consensus earnings estimate. And Cineplex is buying back its stock as it too believes that the shares are undervalued today.
Essential stocks
Utilities stocks have always been the predictable, reliable ones that investors can bank on in the good times and the bad times. They have also seen their share prices rise significantly, so there might not be upside in the short term. But at least they provide investors with reliable dividend income. For example, Fortis Inc. (TSX:FTS) stock has risen 21% this year alone as it continues to provide a 3.4% dividend yield.
Fortis has continued to post better-than-expected results in the last many quarters, a function of rate base growth across the company’s utilities. Looking ahead, Fortis will continue to benefit from system improvements and increased demand from the likes of data centres and the drive toward electrification.
The bottom line
While I have reduced my equity holdings considerably as the market has rallied so strongly, I am still invested. And I’m watching closely for the right time to add to my equity holdings again as I believe there will likely be a short-term sell off, which will create the opportunity to increase my weighting in stocks once again for exposure to what I believe will be long-term TSX market strength.
