Growth Stocks: What to Avoid and What to Buy This Week

As the pandemic weighs on the markets, some big names are being delisted. Here’s what to buy instead of Bombardier (TSX:BBD.B) this week.

Risk is back with a bang this week as the markets get a wake-up call. Investors likely spent the weekend wondering what just happened. Indeed, it was quite the end to the week, with a snap sell-off immediately followed by a whipsaw rally. We’ve seen this happen a few times during the pandemic, though, so the question is – can investors trust these kinds of rallies?

Avoid highly speculative plays as volatility mounts

The fact is that there is a dangerous disconnect at the moment between the markets and the economy. The markets are not reflecting the immense economic danger facing the world. Instead, waves of fear and greed are buffeting equities in equal measure.

No wonder, perhaps, that the needle on the CNN Fear and Greed Index is currently at “Neutral.” However, while the overall picture is one of business-as-usual, this neutral reading is in fact averaged across a number of wildly different readings. While the safe-haven barometer is pointing to “extreme greed,” for instance, the CBOE Volatility Index indicates that investors are in fact fearful of another market crash.

This fear was reflected in the TSX last week, which was overall negative by 3.7% despite Friday’s rally. It was a bad week for Canadian investors in every sector, and especially for companies reporting earnings. Monday saw the pain deepening, with Canada’s largest stock market down 1.6% at the open, making for a loss of 5% over the preceding five-day period.

Investors should now avoid high-risk sectors hit hardest by the outbreak, such as the embattled oil and aerospace sectors. The aerospace sector saw Bombardier and Chorus Aviation also dropped from the S&P/TSX Composite Index. The former stock has lost almost 20% in the last five days, with Chorus down 24%.

Bet on growth stocks but avoid overexposure

For a while it looked as though aviation stocks might pull through. Indeed, the thesis for holding only the biggest airlines may yet work out for long-term contrarians. However, with the markets awash with risk, growth investors should be prepared to shell out for more expensive names that pack quality with a compelling thematic.

If investors are keen to pack retail exposure in a portfolio, a smart play for long-term capital gains exists in Shopify. This top-tier tech stock has performed well during the pandemic, driven by a market seeking solutions to profound changes in consumer habits. Digitalization is fast becoming one of the major thematics of the new decade, with names like Kinaxis outperforming in the supply chain automation space.

Meanwhile, green energy remains one of the strongest growth areas on the TSX. This area is especially rewarding, bringing a mix of low market ratios and rich dividend yields.

Renewable energy stocks like Northland Power are beginning to be repositioned as viable alternatives to hydrocarbon names.

As such, the best green energy dividend stocks make a sustainable addition to a risk-reduced portfolio built around long-term financial goals.

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 Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool recommends ENERFLEX LTD and KINAXIS INC.

More on Tech Stocks

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »

Nvidia Voyager Headquarters
Tech Stocks

Why Nvidia Stock Rallied (Again) on Tuesday

The chipmaker is expected to report earnings this evening.

Read more »