Stocks to watch post-virus
In today’s volatile equities market, are there stocks capable of emerging from the COVID-19 crisis stronger than ever? The answer is yes. Some of the stocks listed below have actually increased in value during the pandemic. Others have plateaued rather than plunged, or have suffered only modest setbacks compared with their peers.
These stocks have in common aboveaverage long-term-growth prospects and a bulwark of financial reserves to cope with adversity. And several pay a dividend that compares favourably with what’s likely to be a long stretch of miserly returns on fixed-income investments.
These aren’t stocks to buy on dips in hopes of a quick profit.
They are keepers. Which means you need to be patient when they slip from time to time, in their march over the years to successive record highs.
Among the criteria for listing these stocks here is that, having held up well in the current pandemic, they are favoured to perform well for investors long after the coronavirus crisis has passed.
Alimentation Couche-Tard Inc., based in Laval, Que., is among the world’s biggest retailers, operating about 16,000 convenience stores and gas bars in North America, Europe and other regions, mostly under the Circle
Kbanner. Deemed an essential service, most Couche-Tard outlets have remained open during the pandemic. So, the firm’s shares have barely budged during the COVID-19 crisis, off just one per cent year-to-date. Couche-Tard has long been an investor favourite, increasing in value more than 13-fold over the past decade to a current $41.30. Couche-Tard is a classic growth stock, meaning it has a lot of capital-gains potential but pays only a small dividend. (The yield is just 0.7 per cent). Nor is it bargainpriced, with a price-earnings multiple (p/e) of about 17. But the firm’s growth potential is impressive. Couche-Tard has several billion in financing lined up for its plan to double in size by snapping up remaining mom-and-pop “C-stores” in the highly fragmented U.S. market.
Stock in Loblaw Cos. Ltd., Canada’s biggest grocer, is an investment in two recessionresistant businesses, grocery and pharmacy. Business has boomed during the coronavirus crisis at most of Loblaw’s close to 2,500 stores (Loblaw, Shoppers Drug Mart, No Frills, Fortino, et al). Revenue was up 11 per cent in the company’s first quarter ended, March. 21. Early pandemic hoarding accounts for some of that spike, but Loblaw is expected to post higher revenues for the year as a whole. Just in time for the pandemic, Loblaw is finally getting efficiencies from a multibillion-dollar logistics system that took years to smoothly integrate. And the pandemic has put a rocket under Loblaw’s e-commerce and “click and pick” curbside delivery services. Loblaw is one of the few stocks to have risen in value during the pandemic, up 7.4 per cent year-to-date, to a current $71. That follows a more than doubling in Loblaw stock value over the past decade, and a near-doubling in profit.
Shares in Magna International Inc., world’s third-largest auto parts maker, are an investment in the future prominence of electric vehicles (EVs) and autonomous, or driverless, cars. While Magna still leads the global industry in its wide spectrum of traditional parts supplied to most of the world’s major automakers — from mirrors to seats to powertrains — an ever-increasing portion of Magna’s total sales is vehicle-mounted cameras, electronic sensors, and miles of computer code. Like the slumping automakers it supplies, Magna has seen its stock decline in value due to the COVID-19-induced economic shutdown. Magna shares are down about 27 per cent yearto-date. But Magna has ample liquidity to keep reinvesting in its R&D prowess (about $4.7 billion in cash and credit lines), and it has recovered smartly from previous industry downturns. From a Great Recession low of $8.38 in 2009, Magna shares soared in value more than ninefold to 2018’s $74.46, before the pre-pandemic global auto slowdown that began last year. At a current price of $52.82, the stock trades at a modest p/e of 13, and pays a rich dividend yield of 4.1 per cent.
Royal Bank of Canada is a leader among Canada’s Big Six banks in its prodigious capital reserves to absorb loan losses. It also boasts best-in-class wealth-management and capital-markets franchises to offset pandemic-era slow or negative growth in its core banking operations. Given the centrality of banks to an economy in partial shutdown, investors have punished bank stocks.
Shares in the Big Six banks are down an average of 24 per cent year-to-date. But the financial sector has been sideswiped in this crisis. It is not at its epicentre, as it was in the Wall Street meltdown of 2008 and the resulting Great Recession. And the Big Six are much better capitalized than they were at that time. RBC is priced at a premium to its Big Six peers, having lost just 16 per cent of its share value since Jan. 1. RBC has posted average annual stock gains of 7.1 per cent for the past decade and pays an outsized dividend of 4.9 per cent. That qualifies RBC as both an income and modest-growth stock.
Edmonton-based Stantec Inc. is a major force in infrastructure, one of the key sectors that will define the 21stcentury economy, as cities rebuild to achieve energy and transportation efficiencies. Stantec’s engineering and construction abilities span a variety of project types, but the $4.8-billion (2019 revenues) firm has become especially proficient in transit projects. Stantec is currently the lead engineer or a major partner in the Hurontario Light Rail and Ontario Line projects, the new Réseau express métropolitain in Montreal, and expansions of the Chicago Transit Authority and the Long Island Rail Road systems. Because they are deemed essential, Stantec projects have been granted waivers from construction moratoriums imposed during the pandemic. Shares in the 66-year-old Stantec are among the few to gain ground during the pandemic, up almost 16 per cent year-to-date, and more than triple their value a decade ago.
Thomson Reuters Corp. is a low-profile but highly profitable player in the electronic news and information industry. Because most of its specialized newsletters for legal, business, tax and medical professionals are subscriptionbased, the firm is largely insulated from economic volatility. Toronto-based Thomson Reuters expects to be among the few blue-chip firms to report increased revenues this year, of as much as two per cent. The firm’s stock has gained value during the pandemic, up about two per cent year-to-date. And that’s after more than doubling in value in the past decade. With a war chest of almost $1 billion for acquisitions, Thomson Reuters is on the hunt for new assets to further boost profitability by spreading its costs over more properties. The stock isn’t cheap, with a p/e of about 22, but pays a respectable dividend of 2.2 per cent.
A final caution: Nothing beats cash and cash equivalents at times like this, when the only certainty is uncertainty. Rule one in investing is to preserve capital. Rule two is to remember rule one. Until you find a stock you’d be comfortable owning forever, you might want to park your money in a government-guaranteed bank deposit or GIC.
Happy investing, and stay safe.