We’re already well into the second half of January, and while it’s been a turbulent start to the year, to say the least, Canadian investors should still focus on the long-term investment game. Of course, it’s tempting to delay putting new money into the market until the next correction hits.
At this juncture, it really does feel like the right cards are in place for such a market-wide dip. And while the TSX Index is certainly long overdue for a 10% drawdown, waiting for one as an investor comes with a great deal of opportunity cost, especially if you barely own stocks (let’s say you have a 25/75 portfolio whereby 25% is in stocks with 75% in bonds or cash).
In any case, it’s all about the risk/reward tradeoff on individual names, even if you believe the markets, as a whole, are expensive. Nobody is forcing you to buy a market index fund, so you should pick and choose your spots, perhaps with a bit more caution in mind now that the TSX Index is fresh off a historic year of returns. It’s just unrealistic to expect another 30% or even 15% in the new year.
Even 10-12% might be a big ask considering how much of the gain is already in the rearview. In any case, markets might begin to flatten, and that, I think, makes the case for buying individual stocks that much more enticing. Even if the market is pricey, not every component is boasting a heated valuation. In this piece, we’ll look at two value names that I think could make sense to buy, starting with a relatively small amount (like $500-$1,500) right here.
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Spin Master
Spin Master (TSX: TOY) stock seems like “dead money,” especially after sagging 24% in six months. With shares rapidly on the descent, perhaps it’s time to start getting constructive on a name that so many have become overly bearish on. Despite the tariffs and consumer headwinds that could weigh further, I see the valuation as tempting, especially with expectations at such a low point.
Jefferies recently had nice things to say about TOY stock, with their buy rating and $26-per-share target. Specifically, analyst Kylie Cohu thinks a turnaround is in the works and that innovations may still be undervalued by the market. I couldn’t agree more and think TOY shares might be the ultimate value play for the new year.
Of course, a 37% potential gain won’t come without its fair share of risks and turbulence. But if you want value and a shot at better results than the TSX, I like the fallen toymaker, especially at close to 8.0 times forward price to earnings (P/E). If you want a better value than the TSX, here it is!
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) is also getting historically cheap at 16 times forward P/E despite a strong quarterly showing that might pave the way for more of the same. Of course, the Couche-Tard growth story is why one would want to punch their ticket. Though the merchandise mix has seen notable improvements, I think mergers and acquisitions, and the potential for synergies, could be the main attraction again once management is ready to make deals.
It’s hard to tell when Couche-Tard will get rolling again, but I think the stock represents a steal of a bargain right here, especially if you’re looking for a premier wealth compounder that can hold up should the next correction (it’ll probably be caused by an AI blow-up) happen in the next couple of months.
