With the TSX Index soaring to new heights so far this year, it feels like everything that could have broken out to new highs already has, leaving just a handful of stocks that might be destined to stay in a rut for the longer term. Of course, it can be quite the challenge to spot the breakouts moments before they happen.
For investors, I do believe that value remains the number-one trait to watch for. Indeed, even the best, most catalyst-rich company in the world might not be a great bet if you overpay. You can lose big money if you try to time a breakout and the valuation doesn’t quite make sense. If the expectations are too high, that ceiling of resistance can be very difficult to break through. And given breakdowns tend to happen, investors must be prepared to buy more of a position if a breakout doesn’t quite go as expected.
At the end of the day, it’s the long-term horizon that counts, and if you can genuinely tell yourself you’d be happy if a breakout fails and willing to buy more as shares come in and a breakout is pushed further down the line, only then would I suggest punching a ticket to begin with.
If you’ve got a great business at a reasonable price of admission, the next big thing to ponder is what catalysts could be coming in the next three to nine months. Indeed, the medium-term catalysts that aren’t priced into a stock might be what helps set the stage for a “correction to the upside,” so to speak.
In this piece, we’ll look at a pair of breakout candidates I’d still be willing to buy even as inflation returns and tariffs shock the Canadian economy once again:
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Canadian Natural Resources
I’ve been pounding the table on Canadian Natural Resources (TSX:CNQ) in recent weeks, primarily because shares stood to rise if the threat of higher oil (think US$100 per barrel) were to return. Just when energy prices nosedived and the Middle East crisis moved toward a peaceful resolution, things took a turn for the worse.
It’s getting worrisome, and markets are finally starting to fade in response. Either way, CNQ stock gained nearly 3% in a single session as oil spiked on Thursday. I think the name remains a vital hedge, and I still view it as a great buy at 11.5 times forward price-to-earnings (P/E), even as the yield sinks below 4%.
It’s a fantastic value for a cash-rich firm that might be the only investment that’s up on those really bad days when oil spikes unexpectedly at the hands of a horrific geopolitical event.
Agnico Eagle Mines
Agnico Eagle Mines (TSX:AEM) is a premier operator in the gold-mining space. The stock’s down big-time, now off 41% from its heights. For gold believers, I view AEM stock as a very rare bargain, especially if you think gold will rally again. At these depths, I think much-lower gold prices are baked in. At 11.9 times forward P/E, the miner looks dirt-cheap, and any up days for gold could mean amplified gains for Agnico.
If you’re light on gold and don’t mind a bit of volatility, AEM stock stands out as one of my top commodity picks, especially while the yield’s above 1%. Now, it could take a while before gold turns, but when it does, AEM’s breakout moment might not be all too far off.
