With the TSX Index holding steady while a fairly violent rotation goes on in the U.S. stock markets (the hot semi plays are finally folding while mega-cap tech stands tall for a change), investors might wish to consider pairing a growth play with a value play (perhaps a turnaround story) and a defensive dividend stock. Indeed, perhaps going down the route of a “barbell” investor is the way to go for investors looking to hold their own in those nasty rotation days.
While there’s no guarantee that everything doesn’t head south on those truly upsetting days, I do think that diversification is a wise move at a time like this, especially for the new investors who may have gone almost all-in on high-tech, growth, and the expensive plays that are finally starting to feel a bit of pain now that investors are ready to take profits and curb their bullishness, especially when it comes to the “picks and shovels” kinds of names.
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Shopify
For the growth buy, I’d have to go with shares of Shopify (TSX: SHOP), as software makes a comeback and the semiconductor plays contract. Undoubtedly, the so-called SaaS-pocalypse might have been overdone, and while the recovery might not be met with a V-shaped bounce, I do think that the road ahead could be more attractive now that the bar has been lowered again.
While the e-commerce darling isn’t cheap at over 100 times trailing price-to-earnings (P/E), I do think the firm has no shortage of compelling drivers as agentic AI looks to finally take off. Of course, investors are right to be a bit skeptical about the rise of agentic shopping.
But, at the same time, Shopify has been equipping merchants with AI tools. And if it can use the tech in a way to drive sales and save on operating costs, I do think Shopify can expand upon its margins. With the Universal Commerce Protocol in place, Shopify may very well have the infrastructure needed for agentic commerce to really hit its stride.
What I find most compelling is that Shopify merchants might get more visibility as users spend more time with chatbots and less time browsing through shops by way of those blue links in a search engine. Any way you look at it, the future looks bright for Shopify, and shares might be ready to bounce back after a tough start to the year.
Constellation Software
As for a value pick, Constellation Software (TSX: CSU) stands out now that shares are down over 44% from their highs. That’s an excessive decline and one that discounts Constellation’s ability to bargain-hunt across software now that prices are way down. As AI collides with software and the application layers start to shine, my guess is that Constellation could be in a position to make up for lost time
Of course, Constellation’s crash might change the way investors view the firm. But, for the most part, I do think that the shares are oversold and close to the cheapest they’ve ever been. If you don’t buy that software, it’s done because of AI; Constellation might be the play.
