Steal These 3 Stock Ideas From This Billion-Dollar Mutual Fund

We’ll let this mutual fund do all the research, and just steal the results.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Here at The Motley Fool, we generally eschew mutual funds. There’s one simple reason: They continue to underperform against the market.

There’s one main reason for this underperformance — fees. If I ran a mutual fund that had a 2% management fee and the index returned 9%, I’d have to get a return of 11% just to keep even after fees. That’s a huge hurdle to clear, especially for a fund with billions of dollars under management. When a fund is limited to the largest stocks in the market because of its size, it essentially becomes the market itself. Those two factors combined make underperformance an almost sure thing.

But just because it’s a bad idea to invest in mutual funds doesn’t mean investors can’t benefit from the wisdom of the people who manage large amounts of money. One of the easiest ways for the average investor to do this is to watch Market Call on Business News Network. It’s an hour-long program that gives investors the chance to phone in and pose questions to some of Canada’s smartest fund managers.

On Friday, Michelle Robitaille from Guardian Capital was on the show. She, along with other co-managers, manages the BMO Monthly Dividend Fund, which has almost $2 billion under management. Here are three stocks that are on her radar screen, and should be on yours too.

1. ARC Resources

In Canada’s oil patch, it seems like companies with oil sands exposure get all the attention, leaving a handful of high-quality energy companies that a lot of investors ignore. ARC Resources (TSX: ARX) is one of those names.

ARC is nicely growing its production. The company’s most recent results showed production increasing 11% in the quarter, thanks to its Parkland/Tower and Ante Creek areas. That, combined with substantially higher oil and natural gas prices, paints a bullish picture for ARC’s shares.

The company’s management team is also one of the best in the business. Reserves are healthy, and were replaced at more than a two-to-one ratio compared to production in 2013. ARC is one of the lowest-cost operators in the sector. It also has a rock-solid balance sheet with minimal debt, and its 3.7% dividend is easily covered by operating cash flow.

Investors bullish on natural gas will want to take a look at ARC. Most of the company’s production growth comes from natural gas, and the company recently acquired a 20-MMcf processing facility in Alberta’s Montney region.

2. Manulife Financial

In the post-recession world of low interest rates and tepid growth, shares in Manulife Financial (TSX: MFC)(NYSE: MFC) were among the worst-performing on the TSX. To its credit, the company has done a terrific job getting through those difficult times, and is poised to be a good investment in the medium to long term.

The company raised capital relentlessly, and is now at the point where it’s perhaps the best-financed insurance company in Canada. Investors can look forward to either a dividend increase or the company’s growth via acquisition. The company trades at a price-to-earnings ratio of just 11.5, and a price-to-book ratio of less than 1.5. It’s the cheapest financial stock in Canada by those two measures.

The company is also growing its wealth management business nicely, and continues to develop operations in Asia, which rivals Canada as the company’s largest market. This growth, combined with its 2.6% dividend, makes Manulife an attractive investment.

3. Labrador Iron Ore Royalty Corporation

Want exposure to a metal that’s a vital ingredient to steel, but don’t want to take all the risk in operating a mine and extracting the stuff out of the ground? That’s where Labrador Iron Ore Royalty (TSX: LIF) comes in.

The company owns 15% of the Iron Ore Company, a joint venture between it, Rio Tinto, and Mitsubishi Corporation. As part of its ownership stake, it gets a 7% royalty on every ton of iron ore pulled out of the ground. These industry leaders aren’t about to walk away from this project after just a bit of weakness.

Besides, the underlying mining company is expanding operations, which should lead to a 20% increase in production. That, combined with the sell-off in the Canadian dollar, should prove to be positive developments for the company. Look for some short-term uncertainty in the dividend, but this company should yield around 5% once these temporary problems blow over.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stock mentioned in this article. 

More on Investing

Hands holding trophy cup on sky background

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »