Hello again, and welcome back to Trade Secrets.
A quick piece of housekeeping: Registration for Trade Off, The Globe and Mail’s free stock-picking contest, closes Aug. 9, with trading running from Aug. 10 through Oct. 30. If you have not signed up yet, this coming week is your last chance to enter for a chance to win a $5,000 grand prize.
The week in markets
If you felt whipsawed recently, you were not alone. Chip stocks have struggled, partly on worries about competition from China. Oil prices, meanwhile, have been on a roller-coaster ride. Add in central-bank chatter and a flood of earnings and it can all feel overwhelming.
But if you step back from some of the recent volatility, you’re still looking at a pretty healthy market. That’s certainly been true of the Toronto Stock Exchange, which we talked about last week.
And even though July was pretty shaky for tech stocks, the fundamentals haven’t shifted dramatically. Both the earnings and spending power from Big Tech could act as a floor in August. Of course, anything is possible in the markets and this is not financial advice.
I was looking at some of the exchange-traded fund flows from late July and it appears investors aren’t fleeing the market. Instead, they’ve been rotating. In the U.S. we saw notable selling out of tech funds near the end of the month. However, there was steady buying of broader equity, bond and gold-related funds. And, coming back to the TSX’s outperformance, our Canadian market speaks to some of that redirection of capital.
How can you tell if a stock is cheap?
Some of that recent pressure on tech has left a reasonably long list of well-known names with cheaper valuations. According to Bloomberg data, stocks such as Nvidia, Amazon and Meta have all been sporting price-to-earnings ratios below their five-year averages.
That’s not a recommendation to buy. More so, it’s a reminder that tech giants have a lot of profit power. All three of those companies are in the midst of a long-term earnings boom. And as a general rule, stocks that slip when earnings are still rising end up looking cheaper.
The barbell portfolio approach
On the subject of tech, it’s the preferred sector of one of my recent guests on Ticker Take, WatchMojo CEO Ash Karbasfrooshan. He joined me to talk about his barbell approach to investing.
To be clear, Karbasfrooshan is not a pro. He’s not a portfolio manager or an analyst. But he’s had some great success as an investor by balancing his portfolio between blue-chip names (which are generally handled by professional managers) and riskier growth stocks.
He’s had a lot of success taking risks during his career.
As an entrepreneur, he built WatchMojo into one of YouTube’s biggest independent channels, reaching about 100 million people a month. And, you might have heard about his recent efforts to swing for the fences in Montreal. He’s leading an investor group to bring the Expos back to the city – fulfilling a promise he made to himself back in 2004, when the team originally left.
As for his stock picks, he tends to focus on technology and digital media names, since he’s operated in that industry for the past two decades. So, as an example, he likes YouTube-parent Alphabet. He also likes Roblox, which has a business that reminds him of YouTube’s earlier days.
You could consider his barbell approach for your own Trade Off portfolio: Split your allocation of stocks between a defensive core and a handful of high-conviction swings.
Trade Secret Tips
Here are a few Globe reads for the week ahead.
If you’re looking for shelter from a choppy market, this one is worth your time. It runs through a list of consumer staples stocks that could play defense in your portfolio. These names tend to do their job during downturns. The caveat is that loading up on safety too early can limit your returns.
Meanwhile, some of those staples stocks are known for their dividends. Here’s a breakdown of some standout dividend payers on the TSX over 25 years.
Finally, there are all sorts of companies leveraging the AI boom. If you’re a bit tired of tracking the chipmakers, Morgan Stanley has compiled a long list of names for consideration.
Good luck out there,
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.