September has a bit of a reputation among investors, often being referred to as the “September Effect.” Historically, it’s been the worst-performing month for the stock market, with the S&P 500 showing an average decline of around 0.5% during this month over the past several decades. This trend has led to some investors approaching September with a bit of caution, even though the exact reasons behind this seasonal dip aren’t entirely clear.
However, it’s important to remember that past performance doesn’t guarantee future results. While September might have a spookier track record, it’s not a guarantee of losses every year. Many factors influence the market, and every year is different. So, while September might give some investors pause, it’s just one month in the grand scheme of long-term investing.
What to watch
When it comes to stock market sectors that might be more prone to dipping, a few usual suspects tend to come up. High-growth tech stocks, for example, are often the darlings of the market during booming times. However, they can quickly lose favour when uncertainty creeps in. Investors might start to shy away from the perceived riskiness of these stocks, leading to sharp declines. So, if you’re holding onto some tech names, it might be worth keeping an eye on market sentiment.
Cyclical stocks are another group that can see dips, especially if there’s talk of an economic slowdown. These are companies in industries like consumer goods, travel, and manufacturing. Basically, businesses that thrive when the economy is strong but can struggle when things slow down. Smaller companies, or small-cap stocks, and those from emerging markets can also be more volatile. This makes them susceptible to larger dips when the market gets jittery. While these sectors might dip more frequently, they also offer opportunities when the market swings back up, so it’s all about timing and strategy! So, let’s look at two to consider.
goeasy
Buying the dip in goeasy (TSX:GSY) stock could be a smart move, especially when considering the company’s recent performance and strong growth outlook. Despite market fluctuations, goeasy has consistently demonstrated robust financial results, with record-breaking loan originations and impressive revenue growth. In the second quarter of 2024 alone, the company reported a 24% increase in loan originations and a 25% rise in revenue compared to the previous year. This consistent growth suggests that the company’s fundamentals remain solid, making any dip a potential buying opportunity for long-term investors.
Moreover, goeasy’s ability to maintain stable credit performance and strong operating margins highlights its resilience in a challenging economic environment. The company’s return on equity remains strong at over 23%, and its adjusted earnings per share have seen a notable 25% increase. With a history of consistent dividend payments and a commitment to expanding its product offerings, goeasy is well-positioned to continue its growth trajectory. This makes a dip in its stock price a potentially lucrative entry point for those looking to capitalize on the company’s ongoing success.
Dollarama
Buying the dip in Dollarama (TSX:DOL) stock could also be a savvy move, especially given the company’s strong financial performance and growth potential. In its latest fiscal quarter, Dollarama reported an impressive 8.6% increase in sales and a 22.2% jump in diluted net earnings per share (EPS). This growth was fuelled by the company’s expansion strategy, with 18 net new stores opened and a rising demand for value products as consumers seek affordable options in today’s economic climate. The company’s ability to maintain high margins, with a gross margin of 43.2%, demonstrates its efficiency in operations, even amid rising costs.
Moreover, Dollarama’s recent increase in its equity interest in Dollarcity and the expansion into Mexico highlight its growth potential beyond Canada. With the long-term store target for Dollarcity raised to 1,050 stores by 2031, the company is positioning itself for significant growth in Latin America. This international expansion, combined with the steady performance of its Canadian operations, makes Dollarama a resilient and promising investment, especially when the stock dips, offering a chance to buy into a strong, expanding company at a lower price.
