Investing in stocks on the TSX that are experiencing rapid growth or momentum can potentially yield significant returns, but it also carries higher risks. Stocks that have seen a steep increase in price, typically defined as a gain of 50% or more within a short period, have shown the potential to continue outperforming in the short term due to momentum. Some studies indicate an additional average return of 10-15% over the following six months in such cases.
However, this momentum can reverse just as quickly, with many soaring stocks facing corrections of 20% or more within a year. Changes in market conditions or overstretched valuations can lead to these returns collapsing. Therefore, while investing in soaring TSX stocks can be profitable, it requires careful risk management and a thorough understanding of market dynamics.
In light of this, it is important to analyze three soaring stocks that offer potential gains with less risk of a collapse.
One such stock is Canadian Western Bank (TSX:CWB), which has seen a 52% increase in its stock price year to date. This growth is attributed to the bank’s strong financial performance, evident in its recent earnings reports. Despite the rally, CWB’s valuation remains attractive, suggesting potential for further growth. However, new investors may want to approach with caution and consider waiting for a pullback before investing.
Another notable stock is Stelco Holdings (TSX:STLC), which has risen by 31% year to date. The company’s strong revenue and profit performance, coupled with its focus on operational efficiency and technological investments, position it well for future growth. While the stock’s valuation is still appealing, new investors should monitor market conditions and consider entry points carefully.
Lastly, GFL Environmental (TSX:GFL) has also experienced a 21% increase in its stock price this year. The company’s solid financial performance, fueled by revenue growth and successful acquisitions, has garnered investor confidence. GFL’s expansion strategy and sustainability initiatives make it an attractive option in the waste management sector. Potential investors should keep an eye on the stock’s valuation and growth plans to assess its continued success.
In conclusion, investing in soaring stocks on the TSX can be rewarding but requires diligence and a cautious approach to manage risks effectively.
