As momentum turns and rallies run out of steam, investors shouldn’t expect things to turn green as soon as they hit their ticket. You see, Mr. Market can be mean at times, at least in the short term. It doesn’t care when you are in stock or when you are out. It will continue to offer prices, some of which may be far from the true intrinsic value of a stock.
In this article, we’ll take a look at two stocks that have retreated recently, but could be positioned to come back strong in the next 18 months leading up to the next Fed rate hike.
Sun Life Financial
Sun Life Financial (TSX: SLF) (NYSE: SLF) and the broader basket of Canadian insurers are on pause right now after their unstoppable recovery from their 2020 lows. I think the pullback will be short-lived, however, as the macroeconomic backdrop continues. to look good enough for the major financial companies.
Now at over 6% from its 2021 high, Sun Life is a top choice to buy on the downside. The 3.5% return is juicy, and stocks still seem too cheap for their own good at just 12.6 times earnings.
Crazy Nicholas Dobroruka argues that Sun Life isn’t the most exciting TSX stock to own, and stocks won’t offer overwhelming market growth all the time.
Given the industry backdrop and the prospect of higher rates, I would say Sun Life shares are, in fact, a pretty exciting way to play in the post-pandemic environment that is starting to look quite prosperous. for Canada’s Best Managed Financial Companies. Given that, I’d be willing to bet that SLF stock will have no problem beating the TSX from a total return perspective over the next decade.
Canadian natural resources
Canadian natural resources (TSX: CNQ) (NYSE: CNQ) was crowned the new king of Canada’s oil sector last year as pandemic pressures weighed on oil prices. Instead of panicking or cutting the dividend in the middle, Canadian Natural came away with one of the best deals I’ve seen in some time with the acquisition of Painted Pony Energy, giving CNQ a nice exposure to the market. natural gas.
The stock hit its 2020 lows altogether, almost quadrupling the level. As the oil rally cools, CNQ stock could risk slipping into a correction. It is a correction that I would buy, however, as CNQ has enviable assets that could fuel dividend growth for many years to come. And at a higher oil level, CNQ will be able to turn on the tap as the underlying economy improves.
The 4.4% return isn’t as generous as it used to be, but CNQ stock remains a great buy for those lacking exposure to oil. Stocks are currently down 6.3% due to the latest pullback in oil. I would look to initiate a starting position here with the intention of adding if the stock pulls back such that the yield swells above the 5% mark.
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Foolish contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.