Don't Miss AI's Third Wave
Perusing the charts of stocks hitting 52-week highs is a good way to help gauge investor sentiment. It’s also illustrative of areas seeing steep positive momentum. On the flipside, checking out this week’s year-long highs can also offer areas to raise liquidity.
Scanning TSX stocks for investor sentiment
BRP may not have been on every growth stock bingo card for 2020. However, I did single it out as a contrarian buy in tough times. Writing in 2019, I called BRP “a potential luxury stock that could outpace a recession.” Last week saw investors pushing this name to a 52-week record high.
I’ve also been bullish on Leon’s Furniture. The end of last week saw Leon’s Furniture’s stock price soar to a yearlong high. Another of my regular recommendations, Magna International, is also hovering around a 52-week high. This is in part due to the boost that green economy stocks have enjoyed since the U.S. election.
Methanex is also doing well, as December passes the midway point. Climbing to a 12-month high, Methanex closed out last week more positive that it has been all year. Monday saw Methanex continue that trend. Xebec Adsorption is also generating a lot of momentum at the moment. While this name has dipped at the start of the week, more upside could be forthcoming. Meanwhile, another growth stock — Dye & Durham — is beating its own record for the year this week.
A desirable, lower-risk retail pick
Canadian Tire (TSX:CTC.A) has also been hovering around a year-long high. This name is about as diversified and defensive as a consumer durable stock can be. A reliable 2.7% dividend yield is reasonably well covered with a payout ratio of just 47%. Looking ahead, earnings growth could be almost 25% annually, adding to a buy signal.
Value signals are mixed, though. While a P/E of 17 undercuts the multiline retail average, a P/B ratio of 2.5 times book is on the steep end for a retail stock. However, this is a high-quality pick, worthy of any mid-term recovery stock portfolio. And while debt to equity may be a concern for some investors, there’s still much to recommend this name.
The year of the Black Swan
Now, these are mostly not your usual low-risk stocks. As such, to see such names trading at 52-week highs suggests that investor sentiment is still leaning towards greed. A vaccine recovery is baked in at this point. Investors are simply sitting out the health crisis, running momentum stocks, and waiting for a rally.
However, this sentiment may be glossing over the nature of the economy and the potential for a protracted pandemic. They say that hindsight is 20-20. But in the year 2020, hindsight need only stretch back as far as March. The pandemic market has already crashed once. It could happen again.
Back in 2019, Ski-Doos and pot stocks looked like hot contrarian picks for a common-or-garden recession. But seeing the recent appetite for risk is alarming. Coming in the middle of a fresh round of lockdowns, it’s not altogether alarmist to wonder whether we are looking at the top of the market.
