Is a “Growth Bubble” On the Horizon? What Investors Can Do to Limit Downside

As valuation multiples have continued to rise across nearly every stock sector (save a few, including commodities), increased concern in the market of an impending “growth bubble” has been exacerbated in recent days, given the volatility among some of Canada’s high-flying growth stocks which have seen sharp declines.

Companies such as CRH Medical Corp. (TSX:CRH) and Shopify Inc. (TSX:SHOP)(NYSE:SHOP) have dropped dramatically recently as investors have begun to de-risk their portfolio from some of the growth names which have provided incredible returns in recent years.

For investors in CRH Corp, seeing a share price appreciation of approximately 300% from April 2016 to April 2017 had many investors believing the party could continue indefinitely. As per my previous warnings on this topic, shares have since slid nearly 75% from their peak as investors have moved their money to more prudent value plays in recent months.

Similarly, an outright bearish short report done by analyst Andrew Left from Citron Research have sent shares of darling Canadian tech company Shopify into a downward spiral, with many investors taking their cash and running, amid concern the company’s overvalued growth prospects will not pan out in the coming quarters.

After all, posing nine consecutive earnings beats is one thing, but maintaining such a pace may not be as feasible over the long-term as some have suggested.

In this era of de-leveraging and risk reduction, I recommend investors beef up defensive and value holdings, looking to sectors (such as commodities) which continue to provide excellent value amid out of control valuation multiple increases.

Invest wisely, my friends.