Volatility is back on Wall and Bay Street, with the TSX Index dipping close to 2% in a single day. Just when you thought stocks would melt up ahead of a Santa rally, they took a bit of a steep reversal. And while there’s plenty to worry about, especially as the odds of a Fed rate cut for December move lower (perhaps lower than 50/50), I’d argue that it’s the long term that actually counts for those young TFSA investors looking to build generational wealth. Arguably, a bit of volatility should have you motivated to pick up some of the stocks on your radar.
In this piece, I’ll share two high-potential stocks that Canadian investors might overlook. And while they could take a bigger hit to the chin if the sell-off worsens, I’d not be afraid to keep averaging down into a sell-off, especially since the growth prospects and long-term narrative themselves have not really changed in these past few turbulent sessions.
Arguably, all that has changed is the price and optimism of investors, which seem rattled by excessive spending on AI by a few large tech companies. Either way, you don’t have to jump into the deep end by getting into tech plays that are already off by close to 10% from their highs. Although this might be where the biggest bargains lie.
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Celestica
Celestica (TSX: CLS) stock shed more than 12% on Thursday’s brutal session, and while some make a rush to take profits, I see an opportunity to do some very gradual nibbling. Of course, buying dips should not come with the expectation of making a quick reward over the near term. If this is the big AI growth scare or the AI-spending driven pullback we’ve been waiting for, you might need to keep your powder dry as you gradually buy the dip, which could span out for quite some time. It’s hard to tell what the next move in the Canadian AI play will be.
Either way, Celestica is still a go-to AI enabler that will make a great deal from the AI revolution. With all the tools to help big tech advance its AI ambitions, I wouldn’t be so quick to write off the name. Of course, if you’ve made a significant sum on the recent run-up, it’s only prudent to take a few chips off the table while you’re up big.
In any case, the latest single-day slip seems excessive, and while 47.7 times trailing price-to-earnings (P/E) is hardly a bargain, the growth profile might make such a premium worth paying. If shares tumble closer to $340 per share, I’d grow more interested. Until then, it’s worth watching closely, especially if this AI volatility leads to something far nastier.
Ultimately, a bit of selling in the AI theme is a healthy thing, as froth is taken off and expectations are moved to the right spot. For Celestica, it’s more about the market mood than anything, and that’s why I’m such a fan of the name, should it come in further, going into year-end, and perhaps into next year.
