It can be a pretty dangerous strategy to chase stocks with significant momentum behind them, especially if less attention is paid to the price of admission (the value of a stock matters most) as well as the fundamental picture. Of course, it’s tempting to buy a stock because it has been moving higher of late, with one of the most attractive narratives in all of Bay or Wall Street. That said, neglecting the price you’ll pay could be the formula for losing quite a bit of money, not just over the near-term, but even the longer term.
Undoubtedly, it’s never a good idea to ignore the risks that you will need to bear as an investor, even if you’re a younger growth-focused investor who can handle extra volatility with the choppier high-momentum heroes. To paraphrase the great Warren Buffett, simply watching the price of a stock move is not investing.
With that, investors should be extra cautious with overheated, overbought, and potentially overvalued stocks that may very well peak out after you hit that buy button, with the expectation that momentum will beget more strength. In this piece, we’ll look at two Canadian stocks that are red-hot, but actually have rapidly improving growth prospects and might still be affordable when we consider the growth balance.
How much is too much?
Of course, you can expect to pay more for solid growth prospects. But how much is too much?
That’s the big question that value investors must answer before they venture into a hot name. Perhaps near-term dips in stocks that still have a robust longer-term trend (think solid past-year momentum) may be opportunistic plays for investors looking for growth opportunities at a somewhat reasonable price. While buying dips in heated growers doesn’t mean you can’t lose money, it is certainly better to get into a correcting stock at some percentage discount than none at all!
Barrick Mining
Barrick Mining (TSX:ABX) has been one of the hottest stocks on the entire market in the past year, more than tripling in a year, while posting 16% gains year to date. The new year is just over three weeks old, but shares of ABX have already posted a gain that many investors would be incredibly happy with for an entire year!
With gold prices just a hair shy of the US$5,000 per-ounce level over mounting geopolitical question markets, it’s no mystery to see ABX stock head into overdrive. Shares gained another 3% on Friday, thanks in part to the melt-up in gold prices and what could be an acceleration of the so-called “debasement” trade. With a new CFO, Helen Cai, aboard and plenty of upside momentum, it feels like Barrick is unstoppable. Investors should be cautious as volatility could spike at any time, however.
Kinross Gold
Kinross Gold (TSX:K) is another massive winner in the past year, rising 237% in the past year and 31% year to date. As a smaller ($62 billion market cap) miner, the higher upside should have been expected.
And while the beta is quite high at 1.2, implying more correlation to the rest of the market, I still view the name as quite unstoppable as its shares gain even faster. At some point, there’s going to be a pullback, but until then, I wouldn’t short the name with this kind of momentum, especially if gold itself breaks out ahead of February. My take? Start buying very slowly or wait for dips between now and the midpoint of 2026.
