When Is the Best Time to Buy a Stock?

Should you buy Royal Bank of Canada (TSX:RY)(NYSE:RY) or Peyto Exploration & Development Corp. (TSX:PEY) today?

| More on:
time is money compounding

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Warren Buffett’s favourite holding period is forever. However, that doesn’t mean that investors should just buy good stocks and then hold them forever.

All stock holdings should be monitored periodically — perhaps every quarter or every year. And if the story has changed, investors need to decide if they should hold or sell and move on.

What makes a buy-and-hold-forever stock?

Investors should have reasons to buy a stock. It could be that they like the stability of the business and that the stock was priced at a discounted valuation.

The big Canadian banks have been one of the most profitable groups of businesses in Canada available for the public to invest in. They also have a track record of increasing their profitability. Furthermore, the big banks are good at maintaining a payout ratio of about 50%, which leaves an ample margin of safety to keep the dividend safe.

If you don’t want to trade in and out of stocks, you can pretty much buy them at a good valuation and just sit on the shares and collect safe dividend income as one core part of your diversified portfolio.

In the first quarter of 2016, it was a great time to pick up shares of Royal Bank of Canada (TSX:RY)(NYSE:RY). At the time, the leading bank traded at a price-to-earnings ratio of about 10.2 at roughly $69 per share. That was a discount valuation compared to its long-term normal multiple of about 12.3.

If you happened to have bought shares then, you could just hold on to the quality shares and collect dividends from them. From the $69 price, the yield on cost is nearly 5.3%. The dividend adds meaningful returns to the price appreciation of 46% to over $100 per share.

What stocks are not buy-and-hold-forever stocks?

Businesses that have above-average uncertainty should not be bought and held forever. An obvious one is oil and gas producers. Peyto Exploration & Development Corp. (TSX:PEY) is one of the most efficiently run gas producers in Canada, but if you look at its multi-year stock price chart, you’ll understand why it shouldn’t be a buy-and-hold-forever stock. Because of the reliance on commodity prices, Peyto’s business performance and, subsequently, its share price can experience large up and down swings.

Investor takeaway

There’s a commonality between buy-and-hold-forever stocks and stocks that are not. The risk is much lower, and the reward is much higher for investors if they buy the stocks when no one wants them.

Right now, Peyto seems to be closer to that reality than Royal Bank. That said, it’s hard to call the bottom. So, investors who can stomach the volatility of Peyto might consider averaging in to a position over time, but don’t expect a quick trade. Shareholders might need to wait a few years for Peyto’s share price to recover to +$30.

Should you invest $1,000 in Royal Bank of Canada right now?

Before you buy stock in Royal Bank of Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Royal Bank of Canada wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Peyto.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Dip Buyers Could Win Big in Today’s Market Dip

If you want to buy the dip, think long-term. Which is why this TSX stock is a top option.

Read more »