2 Oversold Blue-Chip Dividend Heavyweights to Play it Safe

TD stock and another golden opportunity for value investors in Canada in the New Year.

| More on:

Investors shouldn’t be so quick to switch to risk-on mode just because a new year has landed. If anything, now seems like a good time to re-evaluate the risks that lie ahead. Not only is there a recession on the horizon, but the valuations in some of the recession-resilient plays seem to be getting quite rich. Defensives are only good for playing defence if you can get in at a low-to-fair price. Overpay and you could lose money, perhaps as quickly as with the falling knives in the tech sector.

So, don’t pay any price for the defensive stocks because they may not be all they seem in the face of a downturn, especially if we’re in for a risk reversal.

Today, we’ll consider two undervalued stocks that can help further diversify your portfolio and put you in a decent spot ahead of the next bull run. Undoubtedly, the recession has yet to start. Still, last year’s anticipation of this year’s recession is already considered in most stock prices.

Banking on a market bargain

At this juncture, Canadian banks seem incredibly cheap. They’re anything but recession resilient. However, given the damage they’ve endured in recent months, it’s arguable that hard-hit bank stocks are a better bet than the bid-up defensive dividend stocks.

Banks may not be in a position to thrive this year. However, buying bank stocks on big dips tends to be a great strategy over the longer term. The bank dividends are robust and tend to creep higher in the face of recession. Further, bank stocks tend to be quick to find their feet once economic contraction turns to expansion.

For now, banks could slump their way into the recession. But fear not, as they tend to have front-row seats to the ensuing recovery. If you can snag a dividend yield at above historical averages, you may have a terrific entry point on your hands.

At these levels, TD Bank (TSX:TD) is my preferred bank stock to buy while its price-to-earnings (P/E) multiple hovers at around 9.4. Just over a month ago, Canaccord Genuity hiked TD to a Buy, while slashing its peer CIBC to a Hold.

Same macro headwinds, but clearly, TD is better suited to ride out a storm. Canaccord is a fan of the First Horizon acquisition and its ability to power TD’s growth. With a growing presence in the states, it’s no mystery as to why so many like TD and its premium growth prospects.

With a 4.38% dividend yield, TD stock is the best bank for my buck. I’ll look to add to my position on any dips moving forward.

A golden opportunity?

The price of gold has crept higher in recent weeks, but you may have missed it. Meanwhile, gold miners like Barrick Gold (TSX:ABX) have experienced relief. The stock surged 4.4% on Wednesday on an upbeat day for the shiny yellow metal. Over the past month, shares are up around 14%. I think the momentum can continue as gold finds its legs again.

The stock trades at a low 16.7 times trailing P/E, with a 3.12% dividend yield. Indeed, Barrick’s dividend is one of the most bountiful in the space. Should gold make a move to new highs, expect a generous dividend hike alongside more capital gains.

In any case, ABX stock seems like a prudent way to get a low-correlated return in a recession year. The 0.13 beta means the name is less likely to fall alongside the TSX.

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 Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

data analyze research
Bank Stocks

Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has taken a beating over the last year. Where will it be in another five?

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »