With the broad markets sinking lower on Thursday as Iran war worries pick up again, Canadian investors might be wondering if it’s time to take some risk off the table instead of doubling down on some of the market’s fastest-falling knives. Undoubtedly, buying the dip is a winning strategy in bull markets, but when there’s a correction, bear market, or crash, such a move might be met with less inspiring results, at least over the near term. That’s why picking one’s stocks carefully and being cautious could be the move as the markets could stay volatile for a while longer.
As the S&P comes in again, perhaps it’s time to formulate a watchlist of names that’d make sense to buy on weakness, even if it means having to endure steep downside risk over the nearer term (think the next few weeks and months). At the end of the day, if you’ve got conviction in a stock and the price of admission just keeps gravitating lower, I think it’s still worth buying despite the high risk you’ll be slapped with a loss right off the bat. Of course, this is provided you’re in it for the long haul.
Either way, here are the two TSX stocks I’d watch closely as the TSX Index and S&P 500 start the year off with a correction.
Source: Getty Images
Suncor Energy
Suncor Energy (TSX: SU) might be a worthy pick-up right here on strength. Despite the 52% six-month gain, the $107 billion energy juggernaut still trades at quite the modest valuation multiple, at least in my view. Today, the stock goes for just 18.5 times trailing price-to-earnings (P/E), which still underestimates the cash flows to come should oil stay elevated for some months longer. Either way, the fundamentals have been improving by leaps and bounds in recent years. Still, the stock stands out as one of the relative bargain plays in the Canadian energy patch.
As the company looks to keep operating at a high level following its strategic pivot and very generous shareholder-return plans, I certainly wouldn’t view SU stock as a momentum play that’s too hot to handle. In my view, Suncor’s a winner that can keep winning, even as the rest of the market loses big-time. The 2.7% dividend yield isn’t as hefty as it used to be, but, at the very least, investors are in for above-average dividend growth and share buybacks from here.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) stock has taken a hit amid the Iran war, thanks in part to soaring prices at the gas pump. Undoubtedly, if you’re spending more on fuel, that leaves you with less to spend at the attached Circle K convenience store. While time will tell how merchandise sales fare amid the latest spike in oil prices, I do think that the plunge in shares of ATD has become quite overdone.
At less than $79 per share, I view the name as a bargain despite the hit the consumer will need to take when they fuel up. At the end of the day, the company is a solid consumer staple with money to spend on opportunities across the space.
Perhaps a blockbuster deal could beckon investors back into the name as they seek defensive low-tech growth that’s well-insulated from the tech bust and potential AI bubble. When it comes to low-tech growth, it’s tough to do better than Couche-Tard, especially as volatility opens the door for more acquisition opportunities in the convenience retailer or grocery market.
