With the TSX Index continuing to surge higher on Thursday’s large- to small-cap rotation while the U.S. markets plunged, with the S&P 500 and Nasdaq 100 shedding 0.9% and 2.3%, respectively, questions linger as to where Canadian investors should look for opportunity.
Should one chase the hot momentum stocks even as they run out of steam? Or is it a better idea to go to where the value is at?
Personally, I think the TSX Index is primed for performance, at least compared to the tech-rich Nasdaq 100 exchange.
While I don’t think the tech sector and the artificial intelligence (AI) trend are bubbles just waiting to crash, I view the scene as a tad on the vulnerable side as investors start trimming a bit of profit off their first-half winners while putting the proceeds in the dirt-cheap value plays that haven’t caught a bid higher in recent quarters. Indeed, I view the recent turbulence in the American markets as a good thing. Why? Believe it or not, it’s not all about the mega-cap tech heroes!
There are other stocks out there that deserve your attention. As investors begin to show more love to small- and mid-cap names, many of which are trading at nice discounts to historical averages and their intrinsic value, perhaps the “broadening out” of market strength is healthy for the long-term future of the current bull market.
A value rotation could help buoy the TSX Index
If you’re heavy tech, there’s no need to panic sell right here. But if you’re up big, it makes sense to trim a few of your multi-trillion-dollar, mega-cap tech titans as you seek to rotate into deep-value plays, many of which also sport sizeable dividend yields.
All considered, the rotation back to value and somewhat smaller firms, I believe, opens up a window of opportunity for new investors to improve their positioning for a second-half rally that could look a whole lot different from the one enjoyed in the first half.
That means more volatility and perhaps more enthusiasm for stocks that aren’t heavy on generative and predictive AI investments. Though AI stocks are still great for the long haul, non-AI plays could be timelier bets as value outshines sheer growth as the pace of rate cuts may begin to slow drastically.
Waste Connections
Waste Connections (TSX:WCN) is a waste collection service provider that’s been really blasting off so far this year, with shares of WCN now up over 23% year to date. With a history of value-creative acquisitions, smart decision-making, persevering through downturns, and one of the largest economic moats around, I view Waste Connections as one of those stocks worth paying up for.
On Thursday’s session, WCN stock dipped around 0.5%. Now down over 1% from its high, I view the modest dip as more than worth buying into. Sure, the dip could turn into a correction if tech drags down the entire market. However, given the likelihood of a value rotation, any small dip seems more like an opportunity.
At today’s heights ($244 per share), the stock goes for 27.7 times forward price to earnings (P/E). Not a bargain, but a fair price to pay for one of the best all-weather companies in North America.
