It was another wild week. Provinces across Canada are ramping up their efforts to mitigate the spread of COVID-19. The realities of the current situation are unprecedented, and investors are being tested.
Again, we’ll link to our Top 20 stocks for this week at the bottom of this e-mail, but we won’t speak on them much as we haven’t witnessed any signs of market stability.
This past week, the S&P/TSX Index lost another 2.43% of its value. It seems every day there is a step forward, the market takes two steps back. Over the past month, the S&P/TSX Index has now lost 33.88% of its value.
Unfortunately, there may be more downside yet to come. Oil remains under pressure and the COVID-19 curve has not yet begun to flatten. Until either of these headwinds show signs of resolving themselves, we can expect continued volatility.
So what is an investor to do?
- Stay Patient and Remain Calm – Now is not the time to sell. If you haven’t yet sold any of your positions, now is not the time to start unloading. It can be very difficult to remain disciplined, however selling at these low valuations is not the best course of action.
- Diversify – Having a well diversified portfolio will help protect you against further downside. If you are loaded with growth stocks, you may want to offset your portfolio with some high-quality income stocks, which we are transitioning our service to target heavily now.
- Average into positions – We are firm believers that now is the time to start picking up high-quality companies on the cheap. However, since we expect the market to remain volatile over the short term, investors should average into their positions. It is a principle that we have advocated for, ever since we launched.
- Understand your Risk Tolerance – By now, all of you should understand your risk tolerance. If you find yourself in panic mode, investing a large portion of your capital into growth stocks is probably not the greatest idea. After a decade of outperformance, growth stocks will be significantly more volatile than most. In this case, it may be best to shift focus towards high-quality dividend stocks.
Our Bull List
With respect to the bullish stocks on our Bull List, we believe in the long-term prospects of each of these companies. We are investors, not traders and the three-to-five-year outlook on these stocks hasn’t changed.
The lone exception is Air Canada (TSX:AC). Unfortunately, the investment thesis has fundamentally changed.
The global outbreak accelerated much faster than anyone anticipated, and it could take years for Air Canada to recover. This is an unprecedented situation, and no one knows what will happen next.
We do think AC will recover eventually but given all the uncertainty and the potential lasting impacts on air travel we have shifted to a neutral status. Air Canada is still the number one stock presented by our growth screener. But like we’ve said, our screener cannot take macro-economic events into consideration, so it is important to conduct research on these companies as well.
Keep in mind, Warren Buffet recently purchased over $45 million in Delta Airlines, only to have his investment cut in half in a matter of 12 days. That is how unprecedented and unexpected this economic situation has been.
By the same token, some of our previous Bull List entries are starting to look attractive. However, we aren’t updating their status (yet) as for many, the outlook remains unknown. We are choosing to sit on the sidelines until there is evidence of market stability.
Our Dividend Bull List
It is also for this reason we are shifting our focus to our Dividend Bull List. There are plenty of high-quality companies that are trading at a big discount and that can provide investors with safe and reliable income. Don’t forget to check out our Dividend Screener which ranks income stocks by dividend safety, yield and growth.
We’ve mentioned this before, but all of Canada’s Big Five banks are trading at big discounts to historical averages. Utilities and REITs are also starting to look attractive, as are some of Canada’s largest pipelines.
We have been incredibly busy over the past two weeks and we welcome you all to continue using our Q&A section. As a reminder, you can ask your question for all to see, or you can mark it as private which most of you seem to prefer.
Above all else, please be safe. This applies not only to COVID-19, but your mental health. Constantly checking your portfolio, is not healthy in these turbulent times. Be sure to un-plug, and don’t obsess over the daily fluctuations of your portfolio.
Easier said than done – we know. It is important, however to mindful of how it is affecting you.
We live in unprecedented times and it is important for all of us to take the necessary precautions. Where possible, be there to support friends, family and your communities. We are all in this together.
