It’s been an ugly September for Canadian investors, but if you have no plans on retiring at some point within the next five years, the recent slump stands out as more of an opportunity to get more quality merchandise for less.
Indeed, it can be easy to forget what it’s like for stocks to plunge when we’ve been spoiled with an epic rally for most of the year. Going into the final week of September, it certainly seems like stocks can only go down. As sentiment becomes overwhelmingly negative, I think contrarian investors must punch their ticket while the price of admission is low.
September plunge: Why bother with “risky” stocks when I can just buy a high-rate GIC and take zero risk?
With Guaranteed Investment Certificates (GICs) paying the fattest rates in recent memory (some pay more than 5.2% on one- or two-year terms), it seems tempting to throw in the towel on stocks right now, as you reach for “safe” assets that stand to lose anything as stock market volatility soars. Is it so bad to settle for a guaranteed 5-6% for the next year, given how wildly stock prices have been swinging?
If you’re an older investor who can’t afford a worsening of the September pullback, risk-free assets are a sound alternative. For everyone else, though, I believe the pick-up in volatility is worth braving for a shot at greater reward. If you’re young and can brave the market wreckage, you can do so much better than the rate offered by even high-rate GICs.
After September’s slump, stocks, on average, are actually less risky than they were for most of the summer!
Still, few investors seem to want to step forward, as optimism, hope, and euphoria have now turned to doubt, pessimism, and dread.
In this piece, we’ll consider one intriguing Canadian stock priced at under $25 that may be worth stashing in your portfolio for the next 10 years or more. Of course, a stock can continue to nosedive after you’ve bought. So, be ready to add to your position, given the market’s increasingly choppy nature.
Air Canada: $18 and change per share
Air Canada (TSX:AC) stock had an impressive upside surge, as the air travel recovery kicked into high gear. The relief rally ended in devastating fashion, though, as shares ran into turbulence starting in late July. Since the July peak (52-week high just shy of $26), shares have shed around 27% of their value.
The company’s second-quarter results were actually quite solid, with earnings per share of $1.85 versus the $0.68 consensus on $5.4 billion in revenue. With the broader airline space experiencing turbulence, it’s hard for Air Canada not to be caught up in the downdraft. Add recent September woes and worries about a Canadian recession into the equation, and I think AC stock is already priced with the worst in mind. Personally, I think the stock’s oversold and due for a bounce between now and year-end, as it nears a key level of technical support.
As AC stock nears a long-term floor of support of around $16 per share, the stock could have the means to be constructive, even without help from the broader TSX. For now, investors had better fasten their seatbelts because volatility is almost a given at this point. The 2.35 beta entails the stock is a far more turbulent ride than your average stock.
