Value investors shouldn’t be too discouraged now that broader markets have shown signs of bottoming out. Indeed, it would have been nice had some sort of bell gone off when we at or around the trough way back in October of 2022.
Now that stocks have found their footing, though, does not mean investors have a free pass to speculate on high-flying, year-to-date outperformers again. There’s still value out there, and for those who can be selective, I think some cheap names can help power investor portfolios to impressive levels over the next 18 months, even with that recession thrown in!
Though it’s nice to go after the stocks that have the praise of Wall Street analysts and high year-ahead price targets, investors must remember that such goalposts can be missed. And they can be missed by a country mile. As such, it’s important that investors insist on a margin of safety. That way, if a company fumbles due to a rockier-than-expected economic fall, you won’t be in a position to panic sell, or worse, hang onto a stock that could tumble into a seemingly endless abyss.
Remember the stocks that shed 70%, 80%, or even more than 90% of their value during the 2022 market selloff?
Most were unprofitable, speculative firms that had a violent reset in expectation. The further such a sell-off extends, the more doubtful a complete relief rally will be. If you stayed in your lane and invested in what you know how to value, though, odds are that you weren’t left on the receiving end of such a brutal selloff.
In this piece, we’ll concentrate on value plays that also have a pathway to growth.
Brookfield Corp.
Brookfield Corp. (TSX:BN) resulted in the aftermath of the spinoff of BAM.A, or the old Brookfield Asset Management as we knew it. Though the new Brookfield Asset Management is also an interesting play to own, I view Brookfield Corp. as the better value for investors who seek exposure to real, income-producing assets, with a slice of the asset-management business.
Now, Brookfield Corp. is asset heavy, with a smaller (currently 1.47%) dividend yield. However, longer term, I view the name as a worthy long-term bet for investors seeking stable growth over time. The stock is down around 33% from its all-time high just shy of $50 per share.
At 27.9 times trailing price to earnings, I view Brookfield as a high-quality investment to hold if you’re willing to stomach the roller-coaster ride that a rate-induced recession has created. With a nearly 1.6 beta (that implies more correlation to the TSX), it’s going to be quite a ride, but one that could prove profitable once the dust settles.
BCE
BCE (TSX:BCE) is a retiree staple for its huge dividend yield, which currently sits above the 6% mark. As you’re aware, chasing yield can be a risky proposition. With BCE, though, you’re getting piece of mind. The dividend is well covered by cash flows and is built to last through a mild (or even moderate) recession.
As Canada flirts with a negative gross domestic product rate, BCE investors have nothing to hit the panic button over. They’ll get their dividend payments as they normally would. Though more downside could be in the cards following BCE stock’s steep bounce off March lows (shares are up 9% since then), I would keep BCE stock on my radar while the yield remains slightly higher than historical levels.
Ideally, BCE would be a great pickup on a near-term pullback, perhaps toward the $60 range. I’m not so sure if it’ll retest such lows pending a market-wide panic, however.
