The S&P/TSX Composite just took a 756-point drop, falling 2.2% in a single Tuesday trading session as a fresh regional conflict in Iran sent investors running for the exits. While most traders are panicking, smart investors should be looking for beautiful businesses selling at cheaper entry points. As seen during the onset of the COVID-19 era, selling is off the table. Instead, I’d be looking for beaten-down TSX stocks that are caught up in the market sell off but still enjoy resilient revenue and cash flows.
The current turmoil centers on the Strait of Hormuz, a critical chokepoint handling roughly 20% of the world’s daily oil and gas supply. While the closure of this strait is a disaster for global logistics, it creates a massive opportunity for Canadian investors.
While defensive and low-volatility stocks like BCE and Enbridge often gain value during these market volatility spikes as “portfolio insurance,” buying them now could mean paying an expensive valuation.
To truly build wealth, you want to buy the high-quality names that the market is dumping by mistake. Take advantage of mispricing and buy Cameco (TSX:CCO) stock and Canadian Natural Resources (TSX:CNQ) if the markets sell off again.
Source: Getty Images
Canadian Natural Resources stock is a great buy during sell offs
Buy Canadian Natural Resources stock if the TSX sells off because it’s a conflict-insulated cash machine that thrives on the exact oil price spikes currently scaring the rest of the market.
While Brent Crude prices surge past US$80, CNQ stands as the largest Canadian oil company by reserves and is perfectly positioned to benefit as the Iran conflict drags on. Crucially, its operations are concentrated in North America, the North Sea, and Offshore Africa, which are geographically isolated from the conflict zone.
This isolation makes CNQ a safe haven. While global supply is constrained by the war in Iran, demand for heavy Canadian oil typically increases, often narrowing the price discount compared to U.S. benchmarks.
Higher Canadian oil prices will boost CNQ’s cash flow and accelerate its debt reduction from current $17 billion levels. With a policy of directing 60% of free cash flow to shareholder returns, any broad market dip is a gift that allows you to lock in higher long-term dividend and share buyback yields.
CNQ stock currently trades at a forward P/E of 22 and a forward price-earnings-to-growth (PEG) ratio of 0.9, which implies shares could be somewhat undervalued given the company’s earnings growth potential.
The Canadian energy stock could get increasingly cheaper still in another sell-off, even as its revenue and earnings growth potential increases.
Cameco stock trades cheaply during market sell-offs
Back up the truck on Cameco stock because the market is treating it like a volatile materials miner when it is actually a long-term contracted nuclear power utility play perfectly positioned for the artificial intelligence (AI) power boom.
Cameco stock lost 6.3% in value during the recent sell-off, creating a classic mispricing. Investors are dumping it along with commodity miners, even though uranium demand is fundamentally detached from the physical logistics of the Persian Gulf.
Cameco supplies utilities under long-term contracts, and demand for nuclear fuel is experiencing a massive resurgence as a green energy source for base-load stability. Furthermore, the rising energy requirements for AI infrastructure are providing a powerful tailwind for nuclear power.
While its P/E of 63.7 might look stretched, the market is ignoring its recent $2.6 billion supply agreement with India and a massive contract book that ensures resilient cash flows. Buying this dip, and the next, allows you to grab a piece of the global nuclear “love affair” at a Materials sector-driven discount.
The Foolish bottom line
The best time to buy stocks is when others are fearful – Warren Buffett would agree. The “fear premium” has risen and liquidity-driven selling drags down great quality names. Instead of chasing expensive “portfolio insurance” in defensive stocks that may have already peaked, savvy investors should target the winners that the market has temporarily forgotten. CNQ and Cameco stock are strategic hedges against global instability.
And the TSX will still survive the current scare.