Written by Joey Frenette at The Motley Fool Canada
Many Canadians should use their TFSA (Tax-Free Savings Account) as an investment vehicle, rather than just a place to park cash. Indeed, GICs (Guaranteed Investment Certificates) seem appealing these days, with rates north of 3% and no risk of loss. Though lock-in periods are an annoyance, I’d argue that overweighting GICs, bonds, cash, or cash equivalents may cause one to leave gains on the table, as the stock market continues to climb higher.
After just six weeks (or so), the S&P 500 is closer to the top than its bottom. Now, nobody knows what the future has in store, but the abruptness of the recent rally should have many beginner investors on their toes. Indeed, the million-dollar question is no longer, “how bad can things get?” Rather, it’s “is this bounce sustainable?”
Fortunately, TFSA investors don’t need to know the answer. Whether this rally is the start of a new bull market or if we’re due for one last spill before the bull is born, long-term investors should be ready to react. There’s no point in being so emotionally invested in market pullbacks. Stocks tend to go up over the long run. And it’s the long run that many young TFSA investors should care about, not the near-term noise that makes or breaks those who trade.
As the market rally broadens out, the bears waiting on the sidelines for a retest of the June lows may find themselves between a rock and a hard place, with too much cash and not as many places to put it. Though GICs make sense for those uneasy about putting new money to work after a 20% surge in the S&P 500, I think it makes sense to check out the catch-up plays that haven’t surged nearly as much as the broader market. The mid-cap universe, in particular, is still rich with value, in my opinion.
Park Lawn is a death-care company that boasts a mere $1.1 billion market cap. The stock recently flopped after second-quarter earnings on weaker cemetery demand and normalizing death rates. Weak cemetery sales and margin pressures led to $15.6 million in EBITDA (earnings before interest, taxes, depreciation, and amortization), down 16% year over year. EBITDA margins of 20.6% also fell nearly 5% below the consensus estimate.
Undoubtedly, Park Lawn has idiosyncratic issues it needs to iron out. Now down more than 30% off those 52-week lows, PLC stock trades at a reasonable 1.5 times price-to-book (P/B) ratio, with a 1.6% dividend yield. Versus industry averages, Park Lawn stock is cheaper and more bountiful.
Though headwinds could persist through year’s end, I think management can move through margin challenges. The company is merger-and-acquisition focused and will likely go on the hunt for bargains across the industry over the next 18 months.
Badger Infrastructure Solutions
Badger is another mid-cap that doesn’t get much coverage these days. The company, which is in the business of mobile soil excavation using non-destructive hydrovacs, has seen its stock fall into quite a hole over the years. Shares are down around 33% from all-time highs but have been picking up traction of late.
Badger had its fair share of margin issues, but its latest second quarter saw a bit of relief, even if it did miss on the bottom line. The firm is back in profitability and revenue did climb considerably by over 30% year over year. While it’s too early to conclude that the Badger of old is back, I think the firm will feel oil and gas (O&G) industry tailwinds once it gets its margin woes under control. Badger serves a great deal of O&G clients, and it’s hard to imagine demand fading anytime soon. I think the constructive second quarter is the start of a potential rally to higher levels.
The post My 2 Favourite TSX Stocks to Buy Now (TFSA Edition) appeared first on The Motley Fool Canada.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.