5 stocks for post-pandemic results

5 stocks for post-pandemic results

I like ETFs. I also like stocks. More specifically, I like buying stocks when they might be out of favour – such as when a pandemic hits and causes market havoc.

I’ve owned a number of stocks for years and rode pretty much every single one of them through the pandemic. I wrote about how to survive and then thrive after a stock market crash here.

How to get through a stock market crash – and benefit from it

Hybrid investing

As a hybrid investor, I feel I get the best of both worlds: owning a blend of individual stocks and low-cost equity ETFs – for passive, growing income and diversified long-term growth.

With low-cost ETFs as part of my core, I strategically explore. 

I’ve owned a number of dividend paying stocks for years and I will continue to do so, and seek out new opportunities where it makes sense.

You might recall a few weeks back, I shared my top-5 stocks I want to buy more of in 2021.

5 stocks I want to buy in 2021

With more vaccines on the way for this country, our vaccination rollout strategy unfolding (…slowly…) I was thinking about my 5 stocks in that post above and wondering if they would deliver more results than others.

Meaning, did I pick the right ones for post-pandemic results?

Are there other stocks that should deliver results post-pandemic that I might have missed?

Well, to get a few recent, hot takes on some Canadian stocks that could deliver post-pandemic results in the coming quarters I reached to friends at Stocktrades.ca to see what they thought based on their research and assessments.

Here are 5 stocks to buy for post-pandemic results

Manulife Financial (MFC)

I’ve long since owned MFC for a number of years (10+) and will continue to do so.

The guys at Stocktrades.ca feel MFC is poised to go much higher – now is the time to get in.

Mark, the threat of hyperinflation and rising interest rates bodes well for financial stocks. One that is well positioned to take advantage is MFC, one you already own.

Despite being one of the best performing insurance companies through the first few months of 2021, it remains one of the cheapest.

Manulife is trading well below historical and industry averages. As of writing, it is also the only insurance company trading below 10 times earnings and has one of the lowest price-to-book ratios in the industry.

Manulife is a value stock and early signs are pointing to a shift from growth to value. 

This means that Manulife has potentially two tailwinds at its back. The company has also re-established itself as a reliable income stock. It has taken sometime for Manulife to shake the stigma of having to cut the dividend back during the ’08 Financial Crisis. However, it has since returned to growth and has quietly put together a seven-year dividend growth streak. It also has one of the highest 5 year dividend growth rates and with one of the lowest payout ratios in the industry, investors can expect strong dividend growth moving forward.

Given Manulife’s current valuation, it is also likely to outperform peers should rising rates not materialize as expected.

Parkland Fuel (PKI)

I’ve never owned PKI to date but I haven’t ruled it out. I was curious what Dan and Mat thought of PKI and why it’s so high on their current buy list.

Mark, you might want to consider this one for some upside.

Parkland Fuel has been a strong growth stock over the years. Thanks to its torrid base of acquisitions, it has become one of the largest convenience store operator and fuel distributors in North America.

In early March, the company announced year-end results and the impacts from the economic shutdown were clear. Fiscal 2020 revenue dropped by 24% and even fell below 2018 levels. Profitability also cratered as annual earnings per share fell from $2.55 in 2019 to $0.55 this past year.

Not surprisingly, the company’s stock price is still trading at a discount to pre-pandemic levels. The good news, is that Parkland still managed to generate $478 million in cash flows. Furthermore, capital expenditures and acquisitions were fully funded and it managed to extend its dividend growth streak to nine consecutive years.

Expect a strong rebound out of Parkland once the economy is fully re-opened. In Fiscal 2021, it expects to generate adjusted EBITDA of $1.2B based on the assumption of an economic rebound in the second half.

The company’s capital expenditure program and dividend is once again fully funded and it also expects to continue expanding south of the border. Overall, it looks like strong candidate to outperform in the latter half of the year and heading into 2022.

CAE (CAE)

CAE Inc. is a Canadian manufacturer (and world leader) of simulation technologies, modelling technologies and training services to airlines, aircraft manufacturers, healthcare specialists, and defence customers.

I don’t currently own CAE but I have considered it for my taxable account, to take advantage of growth and tax-efficient capital gains.

The guys at Stocktrades.ca really like this one long-term.

Let’s face it, the aerospace industry has been one of the hardest hit during the pandemic. That may also mean it is well positioned to rebound once the economy emerges.

Unlike some of the airline pure plays, CAE managed to stay the course without having to materially impact its balance sheet. While total debt obligations have increased, the company’s current debt-to-equity (DE) ratio of 0.88 is below where it was before the pandemic began. The company’s exposure to training regulated requirements have enabled it to offset some of the negative impacts to the civil aviation industry.

This doesn’t mean it hasn’t had its challenges. Revenue and backlog dropped by 26% and 20% respectively last quarter. Backlog is being impacted by contract delays and outright cancellations as a result of the pandemic.

It is important to note, there is still a ways to go longer term. CAE management “expects the COVID-19 pandemic to continue to have a significant negative impact on its performance relative to pre-pandemic levels”.

Despite this, CAE is expected to exit the year ending March 30, 2021 with positive free cash flow. For the most part, many in the aerospace industry are bleeding cash. Once the economy opens up, CAE will be well positioned to resume the strong growth trend it experienced from 2016 through early 2020.

Alimentation Couche-Tard (ATD.B)

Mark, we know you own Alimentation Couche-Tard and you already have it on your list of stocks to buy more of in 2021 – so let’s get right into it!

ATD.B is a rare combination of both blue-chip stability and strong growth. A $10,000 investment in the company just 10 years ago would have you sitting on just over $100,000 in total capital, dividends included.

This is a compound annual growth rate of 26.02% on your money over a 10 year timeframe, which is something most investors simply dream of.

Couche-Tard has had a rough 2020 and early 2021 as fuel sales are impacting the company’s top line significantly. In fact, on a year over year basis the company saw a 41% dip in fuel sales in the United States and Europe, and a 33% dip in Canada. Overall, revenue was down 27% year over year.

It’s not hard to figure out why this dip is happening; people simply aren’t traveling. But it is also not hard to figure out that this will be temporary as well, as the world will eventually get back to normal.

Despite the hardships, Couche-Tard continued to grow its bottom line by double digits in 2020 and will likely rebound to providing double digit top and bottom-line growth for the foreseeable future.

How quickly it rebounds depends solely on vaccination efforts worldwide, as further shutdowns and travel restrictions could impact them in 2021 as well. But in our opinion, its current valuation is pricing in a harsh 2021 anyways.

Strangely enough, this company still has not recovered from a panic sell off due to an acquisition of French grocer Carrefour that didn’t go through.

In terms of price to earnings, price to book and price to free cash flow, Couche-Tard is trading at a significant discount to its 3, 5 and 10-year median averages.

Canadian Natural Resources (CNQ)

I started to own CNQ many years ago. That said, I’ve invested in more pipelines like Enbridge and TC Energy instead over time. 

I continue to keep Suncor (SU) just in case of future, higher (?) oil prices but you never know. This sector is just so cyclical. I don’t own many stocks in this sector for that reason but some for sure. 

In fact, to prove that point in 2013, I highlighted CNQ was a stock to buy then.

Is what is old new again when it comes to CNQ and SU in 2022??

Yes, to answer your question Mark!

Just to make it clear before I start, I (Mat) am fairly bearish on the oil and gas sector as a whole. However, there is no question that Canadian oil producers are ripe for a short term re-opening play.

Like you in some ways, I owned Canada’s major producers for a long time, and they provided abysmal returns for me. I am not a huge fan of how easily oil can be manipulated, and it is not somewhere I want to park my money for the long haul.

But for someone looking to time the economic cycle we are about to be in in terms of inflation and the surge in demand for oil as travel returns and restriction eases, I cannot think of a better play than Canadian Natural Resources.

Canadian Natural is, in my opinion, Canada’s best oil producer. The company is profitable at anything above $30 WTI and is one of the best free cash flow generators in the country.

Lots are analyzing this company based of 2020 numbers, which is the wrong way to go about things in my opinion. In 2019, it averaged just under 1.1 million barrels a day of production and has over 11 billion barrels in probable reserves.

Its dividend looks suspect right now, accounting for more than 450% of 2020 earnings and 110% of 2020 free cash flow, but if we look forward to 2021 estimates, Canadian Natural’s payout ratio is expected to be just over 50%.

While a producer like Suncor slashed its dividend just a month into the pandemic, Canadian Natural recently hiked its dividend by 10.6% in early March, highlighting that Canadian Natural’s dividend is in no risk of being cut.

The first catalyst for this company will be the increase in demand in late 2021 and 2022 as the pandemic eases. The second catalyst will be the inflationary environment we are heading towards. Commodity prices tend to rise as inflation rears its head, so this provides somewhat of a hedge.

And the third and final catalyst will be 2021 earnings. We can expect these companies to post, compared to 2020, outstanding earnings. Most major producers here are in for a big rebound, and although some of that is already included in current stock prices, there may be more upside.

If an investor finds more promise in a company like Suncor or Imperial Oil, that’s perfectly fine. I’d just tend to look towards what I believe to be the best-in-class producer, CNQ.

Thanks Mat and Dan – the team from Stocktrades.ca – great to get your take on what you’re reading and seeing for value in the Canadian dividend stock space.

When it comes to my plan, I’m going to stay the course. I know, boring right?

I will continue to hold the same stocks I’ve held for years (in some cases for a decade+) and other than buying some of the stocks or low-cost ETFs on my watch list in 2021 – that’s about it.

Again, you can find many of my holdings on this Dividends page – updated routinely.

I hope to have Mat or Dan or both on the site again for future collaborations and thoughts about any value plays in the Canadian market.

Disclosure:

I own MFC, CNQ and ATD.B at the time of this post and have done so, for years. I may or may not to take a position in other companies listed above. If I do though, I’ll likely let you know since this site is about what I own and why…

For Mat and Dan, they also own MFC and ATD.B above. Dan also owns PKI. I’ll let them answer any reader comments to share their own stock investing plans!

For readers that might be interested in learning more, what to invest in, why and when, I have an affiliate with Stocktrades.ca. They are offering a Premium membership at 30% off backed up by their 30-day 100% money back guarantee.

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