Bond yields are rising quicker than expected, and that has many hitting the panic button when it comes to their growth and tech stocks. Value stocks, however, have mostly been spared from the latest bout of selling. As the bond-yield-induced rotation out of growth continues, it makes more sense to scoop up the neglected value stocks that could make up for lost time after following in the shade of their growth counterparts for most of 2020.
Now, I wouldn’t try to time the bond market’s next move. Like timing the stock market, timing the next move for bonds can be a risky proposition. There are far too many variables, and drastically altering your portfolio to anticipate near-term moves can be harmful to your wealth.
Don’t time the bond market or the stock market
The negative momentum in bonds could reverse overnight. And we could find bond yields back at last year’s lows again, as the hardest-hit growth stocks look to bounce back. As an investor, you should be ready for either scenario (rising bond yields, a reversal, or a stagnation). Right now, the 10-year is sitting at just north of the 1.5% mark. Given the damage done to growth stocks over the past few weeks, I think a majority of the negative effect is already mostly baked in. But, as you may know, Mr. Market tends to overswing to the downside with his pricing of stocks after vicious corrections or crashes.
With investors anticipating higher inflation and interest rate hikes, I think fears could spiral, and growth stocks could take on even more damage. Regardless, I’d look to nibble on shares of your favourite growth companies on the latest dip if it turns out that this tech correction is closer to a bottom than its peak.
At the same time, it would be wise to scoop up the deeply discounted “value stocks” if you’re overweight growth and have taken on more damage than you’re comfortable with over these past two weeks of vicious selling. Given many beginner investors have likely skewed towards growth since it paid to chase momentum while neglecting valuation in 2020, we’ll have a look at a neglected Canadian value stock that can help keep your portfolio above water should the market waters continue to be rough through year’s end.
Deep value with the Canadian financial stocks
Consider shares of Manulife Financial (TSX:MFC)(NYSE:MFC), a terrific financial stock that could prove to be too cheap if we are, in fact, due to enter a rising-rate environment sooner than expected.
Manulife stock tends to take on way too much damage when crises hit. And the 2020 coronavirus crisis was no different, as shares imploded on themselves, losing well over half of their value from peak to trough. Unlike the aftermath of the Great Financial Crisis, though, Manulife stock came climbing back in a hurry. Today, shares have nearly doubled, and they’re just over 5% from their 2020 highs.
I view Manulife’s Asian business as a source of meaningful long-term growth. And I still think many are discounting the regional opportunity at hand. The middle class is growing at a profound rate in various Asian countries like China, and Manulife isn’t going to sit around as the booming middle class continues to surge.
When it comes to the Canadian financials, it’s tough to beat the value proposition of Manulife. It’s a name that’s at the crossroads between growth and value. And shares are way too cheap here.
