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Market Crash: How TFSA Investors Can Turn $10000 Into $200000 in 20 Years – The Motley Fool Canada
The planet’s most successful investors are looking at the recent market crash with excitement.
Why?
They know top companies with great businesses are trading at very attractive valuations. In some cases, investing pros say this could be the buying opportunity of a lifetime.
Market crash background
The stock market crash that has occurred in the past month is certainly one for the record books.
The TSX Index is down from a high near 18,000 to a current value close to 11,850. That’s a 34% plunge in a very short time. The carnage is widespread with the energy sector taking the heaviest hit. Canada’s leading oil and gas producers are down 65-70% from their January highs.
Canadian bank stocks are down 25-40% in the past four weeks. Pipeline stocks, utilities, and telecoms are also getting hammered. Even gold, which is often viewed as safe-haven asset, is down 10% from the 2020 peak.
The coronavirus outbreak is largely to blame for the recent turmoil. Now that the virus is spreading extensively beyond China, investors worry the economic impact will be dire.
Canada just saw unemployment insurance applications spike by 500,000. The recent layoffs are primarily due to the shutdown of businesses in the tourism and service sectors. As lockdown orders expand across the country, additional job losses are expected.
The Canadian government announced $82 billion in aid to help people and businesses pay rent and cover expenses during the hard times. Bailouts for airlines and the energy sector are probably on the way. The global airline industry is effectively shutting down as countries ban foreign visitors. Regarding oil, the price of Western Canadian Select oil is at a record low near US$5 per barrel, and WTI oil is down to US$24 from US$63 in January.
Opportunity
The coming weeks or even months will be challenging. Volatility should be expected in the stock markets, and the TSX Index might see additional downside. However, top businesses that are industry leaders and serve as key enablers of the Canadian and U.S. economies will eventually recover.
These stocks tend to be reliable payers of growing dividends and can generate profits during difficult times. Let’s take a look at one top Canadian stock that might be an interesting pick for a buy-and-hold TFSA portfolio.
CN
Canadian National Railway (TSX:CNR)(NYSE:CNI) is the only rail carrier in Canada and the United States that has routes connecting three coasts. This is an important advantage that won’t change anytime soon.
The company transports everything from cars, crude oil, and coal to forestry products, grain, fertilizer, and finished goods. A steep decline in economic activity will put pressure on demand for CN’s services, but the downturn should be short-lived.
China’s coronavirus outbreak appears to have peaked and reports indicate the country is slowly getting back to work. Closer to home, the United States has yet to see the worst of its outbreak. The American government is working on a relief package that could top $2 trillion. Canada is expected to announce additional stimulus measures. Europe will follow the same path to get economic activity rolling again once the coronavirus outbreak is under control.
The result could be a strong economic surge. If that happens, equity markets might regain their losses more quickly than many people expect.
CN generates solid free cash flow and has a great track record of dividend growth. The stock currently trades at $99 per share compared to $127 in February. History suggests that buying the stock during a market crash will produce solid returns in the long run.
A $10,000 investment in CN 20 years ago would be worth more than $200,000 today. The same amount invested in CN in March 2009, at the peak of the last financial crisis, would be worth $60,000.
The bottom line
It takes courage to buy top stocks during a market crash, but the rewards can be substantial.
CN is one top Canadian dividend stock that appears oversold right now. A number of other top TSX Index stocks deserve to be on your TFSA radar today.
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David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned.
Tesla has promised to start selling cheaper models next year, days after a Reuters report revealed that the company had shelved its plans for an all-new Tesla that would cost only $25,000.
The news that Tesla was scrapping the Model 2 came amid a drop in sales and profits, and a decision to slash a tenth of the company’s global workforce. Reuters also noted increased competition from Chinese EV makers.
Tesla’s deliveries slumped in the first quarter for the first annual drop since the start of the pandemic in 2020, missing analyst forecasts by a mile in a sign that even price cuts haven’t been able to stave off an increasingly heated competition on the EV market.
Profits dropped by 50%, disappointing investors and leading to a slump in the company’s share prices, which made any good news urgently needed. Tesla delivered: it said it would bring forward the date for the release of new, lower-cost models. These would be produced on its existing platform and rolled out in the second half of 2025, per the BBC.
Reuters cited the company as warning that this change of plans could “result in achieving less cost reduction than previously expected,” however. This suggests the price tag of the new models is unlikely to be as small as the $25,000 promised for the Model 2.
The decision is based on a substantially reduced risk appetite in Tesla’s management, likely affected by the recent financial results and the intensifying competition with Chinese EV makers. Shelving the Model 2 and opting instead for cars to be produced on existing manufacturing lines is the safer move in these “uncertain times”, per the company.
Tesla is also cutting prices, as many other EV makers are doing amid a palpable decline in sales in key markets such as Europe, where the phaseout of subsidies has hit demand for EVs seriously. The cut is of about $2,000 on all models that Tesla currently sells.
By Charles Kennedy for Oilprice.com
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Divisions within the Bank of Canada over the timing of a much-anticipated cut to its key overnight interest rate stem from concerns of some members of the central bank’s governing council that progress on taming inflation could stall in the face of stronger domestic demand — or even pick up again in the event of “new surprises.”
“Some members emphasized that, with the economy performing well, the risk had diminished that restrictive monetary policy would slow the economy more than necessary to return inflation to target,” according to a summary of deliberations for the April 10 rate decision that were published Wednesday. “They felt more reassurance was needed to reduce the risk that the downward progress on core inflation would stall, and to avoid jeopardizing the progress made thus far.”
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Others argued that there were additional risks from keeping monetary policy too tight in light of progress already made to tame inflation, which had come down “significantly” across most goods and services.
Some pointed out that the distribution of inflation rates across components of the consumer price index had approached normal, despite outsized price increases and decreases in certain components.
“Coupled with indicators that the economy was in excess supply and with a base case projection showing the output gap starting to close only next year, they felt there was a risk of keeping monetary policy more restrictive than needed.”
In the end, though, the central bankers agreed to hold the rate at five per cent because inflation remained too high and there were still upside risks to the outlook, albeit “less acute” than in the past couple of years.
Despite the “diversity of views” about when conditions will warrant cutting the interest rate, central bank officials agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target, according to the summary of deliberations.
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They considered a number of potential risks to the outlook for economic growth and inflation, including housing and immigration, according to summary of deliberations.
The central bankers discussed the risk that housing market activity could accelerate and further boost shelter prices and acknowledged that easing monetary policy could increase the likelihood of this risk materializing. They concluded that their focus on measures such as CPI-trim, which strips out extreme movements in price changes, allowed them to effectively look through mortgage interest costs while capturing other shelter prices such as rent that are more reflective of supply and demand in housing.
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They also agreed to keep a close eye on immigration in the coming quarters due to uncertainty around recent announcements by the federal government.
“The projection incorporated continued strong population growth in the first half of 2024 followed by much softer growth, in line with the federal government’s target for reducing the share of non-permanent residents,” the summary said. “But details of how these plans will be implemented had not been announced. Governing council recognized that there was some uncertainty about future population growth and agreed it would be important to update the population forecast each quarter.”
• Email: bshecter@nationalpost.com
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Shares in US tech giant Meta have sunk in US after-hours trading despite better-than-expected earnings.
The Facebook and Instagram owner said expenses would be higher this year as it spends heavily on artificial intelligence (AI).
Its shares fell more than 15% after it said it expected to spend billions of dollars more than it had previously predicted in 2024.
Meta has been updating its ad-buying products with AI tools to boost earnings growth.
It has also been introducing more AI features on its social media platforms such as chat assistants.
The firm said it now expected to spend between $35bn and $40bn, (£28bn-32bn) in 2024, up from an earlier prediction of $30-$37bn.
Its shares fell despite it beating expectations on its earnings.
First quarter revenue rose 27% to $36.46bn, while analysts had expected earnings of $36.16bn.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said its spending plans were “aggressive”.
She said Meta’s “substantial investment” in AI has helped it get people to spend time on its platforms, so advertisers are willing to spend more money “in a time when digital advertising uncertainty remains rife”.
More than 50 countries are due to have elections this year, she said, “which hugely increases uncertainty” and can spook advertisers.
She added that Meta’s “fortunes are probably also being bolstered by TikTok’s uncertain future in the US”.
Meta’s rival has said it will fight an “unconstitutional” law that could result in TikTok being sold or banned in the US.
President Biden has signed into law a bill which gives the social media platform’s Chinese owner, ByteDance, nine months to sell off the app or it will be blocked in the US.
Ms Lund-Yates said that “looking further ahead, the biggest risk [for Meta] remains regulatory”.
Last year, Meta was fined €1.2bn (£1bn) by Ireland’s data authorities for mishandling people’s data when transferring it between Europe and the US.
And in February of this year, Meta chief executive Mark Zuckerberg faced blistering criticism from US lawmakers and was pushed to apologise to families of victims of child sexual exploitation.
Ms Lund-Yates added that the firm has “more than enough resources to throw at legal challenges, but that doesn’t rule out the risks of ups and downs in market sentiment”.
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