Written by Joey Frenette at The Motley Fool Canada
Indeed, TSX value stocks have been great places to hide and make money in an environment of continued volatility driven by multiple growth and tech stocks. Cathie Wood’s ARK Invest line of funds has suffered heavy damage over the past year. Its focus on innovation at high multiples paid off in 2020. Yet the incredible momentum now appears to be reversing, with its flagship Ark Innovation Fund sink further in Thursday’s brutal trading sessions.
Undoubtedly, with higher rewards potential comes the cost of higher risk. While only time will tell if Wood’s aggression will pay off in the long term (think three to five years), most investors who don’t want to see their names drop by double-digit percentage points over the a given week would be best served with value stocks, especially those with competitive advantages that investors may have lost sight of.
In this article, we’ll take a closer look at TSX value stocks that may continue to rise, even as Cathie Wood’s shares continue to amplify the damage to the tech-heavy Nasdaq 100 Index. Although value stocks may have less rebound potential, I think they are great diversifiers for investors who find they are already quite overweight in some of the exciting names like those in the investment fund range. ARK.
Exciting as they are, it’s hard to say when they will bottom out, and as rate hikes continue to be served, unprofitable growth companies that don’t expect to turn a profit anytime soon will continue. to take the brunt of the damage. Indeed, multiple price/sales (P/S) on some names, particularly those in the ARK fundline, still look very expensive and difficult to assess in a potentially rising rate environment that we are about to face. to enter in 2022. .
Consider Royal Bank of Canada (TSX: RY)(NYSE: RY) and tucows (TSX:TC)(NASDAQ:TCX), two intriguing value options for investors seeking strong risk-adjusted results.
Royal Bank of Canada is a Steady Eddie dividend stock that the average Canadian investor is likely already exposed to, given that it is a core holding in many Canadian mutual funds and ETFs. Canada’s leading bank has held firm during the COVID crisis and is poised to begin a potential multi-year recovery as loan growth and spread expansion begin to replace provisioning.
Indeed, the favorable environment for financials is familiar to the Big Six. Still, for those who want a proven winner at a reasonable price, it’s hard to match the value proposition like that of a Royal Bank. The stock trades at 11.8 times earnings at the write, alongside a hefty dividend yield of 3.7%. With the rally showing signs of stalling, I wouldn’t worry about a reversal as the recent numbers I think should support the stock in a potential run towards $150 per share.
With higher rates, large redemptions and dividend hikes in the pipeline, I suspect it will be difficult to keep RY stocks from trending higher in the new year.
Tucows is an IT and telecom services company (via its subsidiary Ting Mobile) with promising growth prospects. The stock recently corrected and looks ready to buy, as the company continues to invest in its growing fiber and mobile services. Indeed, domain registrars won’t be a huge source of growth, but it’s a solid cash-generating business that can help Tucows continue to spend on its growth ambitions at Ting.
Indeed, Tucows is a lesser known game, but it is a game with a low beta (0.59 beta) and a very cheap multiple (3.1 times sales).
The post 2 TSX Value Stocks to Watch in January 2022 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 owns and recommends TUCOWS INC.