It can be quite challenging to beat the market over an extended period of time. Of course, by market, I speak of the S&P 500. If you’re looking to beat the TSX Index with a portfolio that’s a good mix of U.S. and Canadian names, though, you might actually find it’s easy to outrun the Canadian market. As the AI trade gets going again while mega-cap tech starts showing early signs of leadership, we may very well be headed for another big bull run led by AI agents and all the sort.
Indeed, much buzz and hype have surrounded Anthropic’s latest model, Claude Mythos, which is too risky to release more broadly. It seems like investors aren’t quite sure if they should be euphoric or frightened, given the potential for Mythos to change the way we think about tech and, of course, cybersecurity and software. In any case, I think outperforming the S&P could be a tougher chore than beating the TSX Index, especially with the latter index coming off an S&P-beating year.
Moving ahead, I think dividend stocks and a good mix of the cheap AI and tech names south of the border (perhaps as part of a barbell portfolio that combined defensive dividend payers and safety assets with the risk-on growth plays) could be key to staying a bit ahead of the Canadian stock market.
In terms of dividend stocks, the following dividend payer, I believe, stands out as having a good shot to give your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) a nice leg up in the coming 18 months or so.
Source: Getty Images
Suncor Energy
Suncor Energy (TSX: SU) was already a cheap energy producer going into the latest sell-off on the slip in oil prices. As investors are ready for oil to march even lower, I think that Suncor might deserve to take a less hard hit to the chin compared to its pricier rivals. Right now, the stock goes for an 8.6 times forward price-to-earnings (P/E) ratio, which I find to be a real value that’s hiding in plain sight atop the TSX Index.
While shares are cheap and the fundamentals have improved for the better in recent years, I still think there’s no reason to throw in the towel at the first signs of weakness. The stock is down just over 6% from its high on the recent dip in oil prices. As oil settles into its new, higher range, though, I think SU stock has what it takes to return to new heights, perhaps sooner than its producer peers.
Of course, things have the potential to get far choppier, especially if oil overshoots to the downside. In any case, the 2.8% dividend yield is well-covered and subject to impressive growth as Suncor improves its operating economics while oil prices look to stay a bit higher than the five-year historical average. Instead of viewing oil stocks as hedges against a worsening of the situation in Iran, I view Suncor as a deep value play that’s worth hanging onto for the long haul for the dividends and the appreciation potential.
I have no idea if Suncor has what it takes to outpace the TSX Index in the near term, but I think it’s a far better value than the rest of the market. And for that reason, I’d opt for Suncor amid recent volatility in the energy sector.
