With the TSX Index continuing its impressive rally into the hottest parts of summer, investors might be wondering if it’s still worth buying or if it’s a better idea to just sit and wait for the next inevitable correction. Indeed, if a correction happens every year or so, and it has been quite a while since we’ve had one, it feels like it makes sense to just stay patient as one looks to add to one’s dry powder.
Of course, corrections are a healthy part of any bull market, and while we might get one in the second half of the year, it’s still unknown as to whether the rally that precedes it (starting from here) will offset any such correction. And just because a correction tends to hit every year on average does not mean that one will come right on schedule. At the end of the day, markets can go well over a year without a correction or post multiple corrections within that same calendar year.
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The TSX’s new reality?
In any case, I do think that valuations are a tad on the high side for the TSX Index, while yields look to gravitate a bit lower. But, at the end of the day, investors shouldn’t treat the hot market as a sign to sell and raise a bit of cash, especially with inflation continuing to linger. So, what’s the new reality for Canada’s stock market? I do think that the index is, more or less, fairly valued, and perhaps undervalued when you consider the potential impact of artificial intelligence (AI).
Sure, Canada might not be a hotbed for AI frontier labs, but the economy still stands to gain as the benefits (think boosts in profitability or substantial cost savings) give a bit of a jolt to certain sectors. Whether we’re talking about the financials, the power producers, midstream energy firms, or certain miners, I do think that the TSX Index remains a great place to invest, even as the great TSX rally takes us to higher highs. Here are two stocks that, in my view, look cheap:
Cameco
Cameco (TSX:CCO) is a unique Canadian gem of a company, given its dominance in uranium production. With the AI buildout moving ahead, energy is a giant question mark right now. Indeed, nuclear energy is a solution, and while it does take time to get such power plants up and running, I do think that uranium could be the way to play the structural shift that could unfold over the next three to five years.
Indeed, Cameco is a leading producer that, I think, is being unfairly sold off. Now down around 23% from its highs, the name looks like a fantastic indirect play on the rise of AI clusters and the energy needed to keep them powered.
TD Bank
TD Bank (TSX:TD) also looks like another big winner as AI translates to efficiencies, significant cost savings, and maybe even a bit of a sales boost. The stock has been on an incredible run, but with the rise of agentic AI and the bank’s initiatives to embed automation across its business, I do like the long-term setup.
Add the company’s TD AI Prism, a very impressive predictive foundation model, into the equation, and I do think TD Bank is offering a glimpse into what we can expect from the future of banking. With a 2.6% dividend yield, the name is definitely worth considering for those looking to play the new, pricier reality for the TSX Index.
