With September and a potential rise in trading volume (and, with that, volatility) ahead, investors might be wondering if it’s a good idea to get out of certain overheated year-to-date winners before the broad markets have a chance to give back some of the gains we’ve been treated to. Undoubtedly, the TSX Index has been quite heated, and while I wouldn’t go as far as to say it’s somewhat on the overheated side, I do think that a bit of a correction wouldn’t be out of the ordinary at all.
With a bit of choppiness in the AI trade to close out the month of August, it certainly feels a bit uneasy as we head into one of the choppiest months of the year. While the September effect may or may not happen this time around, I do think that the best move for investors is to tune out the noise and focus on swinging at the picture-perfect pitches that do find their way into that “strike zone.” Like it or not, there are decent dividend deals on the TSX Index today, but they could certainly get better in the coming weeks and months.
As the AI trade begins to pave the way for a rougher ride, I’d argue that rotating into solid value plays might be the move, especially if selling in the bubbliest parts of the AI trade leads to a rotation towards quality, value, and solid dividend payers.
Source: Getty Images
TC Energy
In this piece, we’ll tune into a name that’s corrected, now down just shy of 14% from its all-time highs, thanks in part to an industry-wide plunge. Enter shares of pipeline firm TC Energy (TSX:TRP), which, despite slipping into a sharp correction in July and parts of August, is still up a decent 12% year to date. Zooming out, the stock remains up more than 53% in the past two years, so the latest dip seems more like a natural reaction to the April–May melt-up earlier in the year.
Now that shares have cooled off and the valuation is becoming easier to get behind, the big question is whether now represents a decent time to buy. The dividend yield is above 4% again, and with the long-term narrative still in play for the energy transports, especially as new AI data centre projects call for increased natural gas transportation, it certainly feels like the latest dip is overdone. If anything, shares of TRP might just be spared if tech were to cause the next market-wide (the S&P 500) move lower.
Any way you look at it, TC Energy seems to be going through a breather, rather than the start of a vicious valuation reset. As investors reconsider the midstream energy plays, especially the heavyweights with capital expenditures and above-average debt loads, I do think that the pipelines could continue to fall under pressure for some time, especially if interest rate hike talks are on the table.
Given the low correlation to tech (and especially the AI trade), I’d be more comfortable placing a bet on a name like TC Energy than braving the dip in some of the more tumultuous semiconductor plays that are now deep into a bear market.
The bottom line
TC Energy has a well-covered dividend, a long expansion runway, and is making progress on improving that balance sheet. All considered, I think the name is worth a closer look while it’s down and out, going for 22.8 times forward price-to-earnings (P/E).
