At times, it can be a pretty bad idea to get overly attached to a single stock in your portfolio, but it’s far better to want to hang onto a particular name for decades at a time than to trade in and out of stocks as many retail investors tend to do. Indeed, owning pieces of companies for the long run isn’t nearly as exciting as getting into a hot stock (or a hard-hot one) with the intent of getting out after a run, taking home a nice gain, preferably over a concise timespan.
Also, just because a price-to-earnings (P/E) ratio on a stock is low does not mean you’re getting a market bargain. Doing the homework is important so you can get a better sense of which cheap-looking stocks are actually undervalued and which expensive-looking names might still have a ton of upside left in the tank. In any case, there’s a lot more to it than looking at low P/E ratios.
And if you chase hard-hit names, you should be willing to take a hit to the chin as an investor because odds are the pain won’t turn to euphoria after a stock has entered your TFSA or RRSP portfolio.
In any case, value traps are real, and they can be difficult to steer clear of if you’re limiting yourself by screening out all other stocks that don’t have P/E ratios below a certain level. Personally, I’m more in favour of chasing decent performers poised to experience strengthening tailwinds. Paying up for quality and growth can be a winning strategy. In any case, one of the cheapest stocks (a name that I’d refuse to sell, even when the tides go out) in my portfolio is actually a respectable gainer on the year.
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Bank of Montreal: A dividend grower to hold for the long run
Enter shares of Bank of Montreal (TSX: BMO), which looks like a profit-taking candidate after soaring over 37% in the past year or 55% in the last two years. The dividend yield (3.38%) isn’t as large as it once was, and the valuation seems to be getting frothy, at least when you look at the 17.3 times trailing P/E multiple.
That said, I think the path ahead could continue to reward shareholders. Of course, ringing the register might be a good idea if you’re running on a tight budget. But, either way, I see BMO’s growth path south of the border as a reason to pay at a high, even if the yield is on the low end, while the P/E is on the high end.
In short, the bank isn’t just expanding in the U.S.; it’s also seeking to defensify in higher-growth regions (think California). Add the recent closure of low-traffic branches at home into the equation, and it’s clear BMO has an appetite for efficiency gains. As BMO also adapts AI, my bet is that the bank will get a huge efficiency boost in the coming years as automation paves the way for juicier margins.
In short, BMO is pricier than it was a year ago. But it deserves to be, and I think there’s another good year of gains to come.
