How to Invest When the TSX Refuses to Slow Down

TD Bank (TSX:TD) and another value gem to buy in a hot TSX Index.

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Key Points
  • When the TSX keeps hitting new highs, don’t sit in cash waiting for a pullback—keep buying high-quality stocks at fair prices to stay ahead of inflation risks.
  • Two TSX value picks that still look cheap are TD Bank (about 12x trailing P/E, still discounted vs. peers) and Fairfax Financial (about 7.8x trailing P/E, down ~18% and positioned more for capital gains than yield).

What’s a value investor to do when the TSX Index just keeps making new all-time highs on a consistent basis? Undoubtedly, as a value seeker, it can feel tempting to just hold cash and take profits in some of the winners, hoping that a near-term correction brings back an abundance of market bargains.

And while it’s getting tougher to land those deep discounts that entail paying three quarters to get a dollar, I do think that it’s still far better to pay a fair price for quality stocks rather than sit around with an excess of cash on the sidelines, especially with inflation being where it’s at and the potential pressures (from the oil spike) that could arise in the second half of 2026. Indeed, things are getting more expensive, and the best treatment for another wave of inflationary pressures is being invested in stocks.

Sure, valuations might be stretched when it comes to a few market darlings that are atop your radar. But, for the most part, I still think that investing for the long haul is the way to go, rather than seeking a low entry point and an exit at some point down the road. As the TSX Index continues to stay strong (or perhaps not), I think the game plan for investors should be the same. Keep looking for the high-quality merchandise and insist on paying a price of admission that’s fair.

In this piece, we’ll look at two names that I think are still very favourably priced as the broad Canadian stock market looks to get in that fast lane on the freeway.

stocks climbing green bull market

Source: Getty Images

TD Bank

When it comes to cheap stocks on the TSX Index, TD Bank (TSX: TD), I believe, still stands out as a value candidate. Of course, the banks have been unstoppable in the past year, and it feels like nothing can stand in their way. Even as the Canadian economy slows its pace, I think the banks have what it takes to keep delivering solid numbers, especially TD Bank, which continues to trade at a significant discount to its peers in the Big Six. Even after soaring 92% in two years, TD stock still goes for a very modest 12 times trailing price-to-earnings (P/E).

Of course, the dividend yield is now relatively lacking at 2.9%. But, for the most part, TD Bank still has a lot of appreciation and dividend growth to offer for those willing to look beyond the upfront yield and the rather heated momentum. Like it or not, TD is still a cheap stock in a market that’s getting slightly expensive.

Fairfax Financial Holdings

Fairfax Financial Holdings (TSX: FFH) also looks like a deep-value outlier in a hot market. Though it’s tough to save enough to buy a single share (they go for over $2,100 per share), I do think that the Prem Watsa-led insurance and investment holding company is a market bargain at 7.8 times trailing P/E.

The yield is just shy of 1%, but make no mistake, Fairfax is a capital gains play and one that could deliver after chopping around in the past couple of months following quarters that were decent, but not shockingly good. Either way, those seeking a proven performer at a compelling discount should look to pick up the name while it’s down close to 18%.

Fool contributor Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool has a disclosure policy.

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