Cyclicality is something I don’t really touch on much, and there are reasons for this. Like technical analysis and other chart-reading methodologies some investors have in place, I view such investing styles much like voodoo or black magic.
There are some historical trends worth watching, but “reading the tea leaves” so to speak doesn’t account for idiosyncratic risks arising from time to time. Right now, I’m seeing both market and stock-specific risks on the rise, so I’m perhaps less-inclined to believe that a Santa Claus rally is on its way this year, as opposed to in years’ past.
The thing is, there are reasons why stocks tend to rally into year end, as investors reallocate positions and attempt to put some capital to work before the end of the year for tax reasons. For those who think this year will be like most of the rest, and we’ll rally into New Year’s, here are two stocks to consider right now.
Shopify
Perhaps the most high-momentum stock in the Canadian stock market right now is Shopify (TSX:SHOP).
Indeed, looking at the company’s chart above, it’s clear that this recent sell-off is a blip on the radar in what is otherwise a very strong uptrend. Investors appear to be focusing their efforts on finding growth stocks that have the sort of fundamental catalysts (and balance sheet strength) that can take them through whatever cycle we may be heading into.
Still trading near all-time highs, it will be interesting to see if this momentum can be sustained into the New Year. I’m of the view that Shopify is an excellent long-term holding, and I’ve held this view for a few years (was initially skeptical of the company’s valuation relative to its growth prospects).
The thing is, Shopify has continually shown its ability to grow in varying environments, with the pandemic actually supercharging the company’s top- and bottom-line figures.
Holding all else equal, this is the top Canadian growth stock I’d focus on as a way to play continued momentum through the end of 2025.
Royal Bank of Canada
I’ve been growing increasingly bullish on Royal Bank of Canada (TSX:RY) as a top way for investors to gain exposure to the Canadian financial sector in recent months.
Much of this has to do with some interesting trends I’m seeing under the surface, which could impact the financial sector in the U.S., specifically among regional banks.
Royal Bank is well regarded as a top-10 bank globally and is intrinsically important to the functioning of the global banking system. As such, this is one of the lowest-risk plays in this sector, a factor I think could come handy if we do see turmoil build in the financial sector before the end of the year.
That’s not a prediction, but more an increasing probability I’m keeping my eye on. Personally, I think it’s one top Canadian bank poised to outperform in such a climate, and it’s why I’ll keep pounding the table on this name.
