TFSA investors: 1 blue-chip stock pick to keep forever

Image source: Getty Images

Markets breathed a collective sigh of relief last week, with the TSX index rallying after the sharp correction it had been propelled into during the first half of the year.

Yet many bearish experts, including Morgan Stanley analyst Mike Wilson, thinks the recent wave of relief will be short-lived and the bear could pull the S&P 500 back to 52-week lows of 3,600-3,660.

Now, no one knows where the TSX, S&P 500, or Nasdaq 100 head next. For every clever bear (like Wilson), there’s bound to be an equally wise bull beating the table on stocks amid its recent ricochet.

The bear market appears to be partially cooking in a mild recession

Historically speaking, bear markets tend to be more vicious on average, especially those that accompany a recession. While a recession is certainly a possibility for 2023, it’s not a guarantee, especially after the dreaded better than earnings season. At this point, it looks like much of the recession is already in place. If the next recession turns out to be severe, the bear market may have more room on the downside. At the same time, if this is a “mild” recession, the current fall seems to fall into this “just enough” category.

The real benefit comes from the fact that the economy can avoid a recession. I think it is possible, given the resilience of the consumer and the many job openings that still exist today. Without a doubt, the tech sector is feeling the pinch. However, the shockwaves from the recent tech layoffs may not spread beyond the high growth areas of the market.

Indeed, TFSA (Tax-Free Savings Account) investors should stay the course and look to top up when possible. Whether the rally continues or not is a question mark. However, I think there is much more to be gained in the long run by being optimistic.

Consider CN Rail (TSX:CNR)(NYSE:CNI), an intriguing blue-chip TSX stock that I believe could support a rally to much higher levels by the end of the year thanks to recent earnings

CN Rail: Strong earnings momentum could fuel stocks

CN Rail just completed an incredible quarter that sent shares up more than 4%. In the second quarter, CN Rail increased revenue by 18% year over year in constant currency. This is a leap from the single-digit growth shown in previous quarters. Much of the revenue strength can be attributed to higher fuel surcharges. With such a wide moat protecting CN Rail’s economic moat, you can bet the railroad will have a much easier time weathering the recent period of inflationary pressures.

In Canada, inflation is at 8.1%, but is expected to peak and decline at some point in the near future as the Bank of Canada continues to raise interest rates . Still, there is uncertainty about where inflation will settle in the second half of the year. Thankfully, CN Rail will likely continue to weather headwinds with grace.

CN’s operating ratio fell to 59% (the railroad industry’s operating efficiency gauge, defined as operating expenses divided by net sales), an improvement (less is better) of 260 basis points from one year to the next. Thanks in part to new policies and a new chief executive officer (CEO), CN appears to be getting back on track.

Going forward, the firm hopes to keep its cost/income ratio below 60%. How much below 60% remains to be seen. Either way, I think the company is bracing for a potential upside surprise as CEO Tracy Robinson seeks to make CN the best it can be.

Comments are closed.