If the current wave of volatility sends broad markets closer to a bear market, investors should be ready to deploy new money into stocks, even if it’s more painful to do so. Of course, Wednesday’s turnaround session (one of the best days stocks have had in a while) may suggest that the worst is over and that the bottom is in.
And while the bullish pundits are out, pounding the table and calling for new all-time highs, I would remain cautious and not look to overreact either way. Indeed, it seems like any given day is going to see extreme fear or greed on the part of investors. And, with that, it’s important to keep one’s cool and make the moves that are the most rational. To put it simply, just because we’ve had a robust bounce doesn’t mean that we’re out of the woods.
Source: Getty Images
Markets could go either way in the near term amid geopolitical uncertainty
Things could easily take a turn for the worse with the crisis in Iran, especially if no long-lasting deal can be struck between the U.S. and Iran as we move ahead with the ceasefire. Of course, the start of the ceasefire has gotten off to a bit of a confusing start, and it’s not yet clear when it’ll be completely safe for ships to move through the Strait of Hormuz. Either way, I think things will clear up, and that could mean oil prices have more room to the downside.
While it’s hard to know if we’ll be in for a revisitation of the recent lows or if a ceasefire leads to a peaceful resolution, I do think that putting together a watchlist could make a lot of sense, especially if you’re looking for wider discounts than the market is currently offering up. Make no mistake, there are some pretty compelling value plays that exist today.
But, as always, investors shouldn’t exhaust their cash in one go with the assumption that it’s safe to get back in. Volatility is heightened, and 2–3% up and down days may very well be in the cards for the rest of the month.
Canadian Natural Resources just had a really bad day
In terms of dividend payers to catch on the way down, I think Canadian Natural Resources (TSX: CNQ) looks very interesting.
Canadian Natural Resources fell just north of 6% on Wednesday, thanks in part to the steep drop in oil prices and hope that the Strait of Hormuz will get flowing again. Undoubtedly, if Iran and the U.S. can talk things out and reach a deal that sees traffic through the Strait return to where it was before the war began, there’s really no telling how much lower oil can go.
Either way, though, shareholders of CNQ don’t need oil to stay above US$90–100 per barrel to do well. Arguably, the pullback in oil prices should have been a given, and while CNQ stock may have taken a bigger hit than some of its rivals, I do see value in the dip, especially as more of the recent gains are given back.
In a previous piece, I highlighted CNQ as a fantastic stock to watch, but noted that I’m waiting for a bigger dip before considering initiating a position. Now down nearly 8% from its high, shares look that much cheaper, and the yield is that much more bountiful at around 3.7%. That said, given the likelihood that oil slips further and CNQ’s higher sensitivity to such dips, I’d be more interested if shares fell by enough such that a yield well above 4% was back in play.
In short, shares look like a great deal after Wednesday’s drop. But for those seeking a wider margin of safety, I think the $58 level is worth watching (shares are going for $64 and change today).
