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Continue to Pass on BCE Inc.: Hold These 2 Stocks Instead

Are you considering an investment in BCE Inc. (TSX:BCE)(NYSE:BCE)? If so, don’t.

I’m recommending that you pass on the telecom giant’s 4.7% dividend yield and buy both Leon’s Furniture Ltd. (TSX:LNF) and Power Corporation of Canada (TSX:POW) instead. Here’s why.

Back in September, I recommended investors forget about BCE stock and buy both  Leon’s and Power Corporation in its place. At the time, you could have bought the two stocks for 30% less than what you would have paid for BCE.

Since then, BCE’s stock has declined by 5% while Power Corporation and Leon’s stocks are up 12.3% and 11.2%, respectively, in the same period. Yet you can still buy the two stocks for about $48.62 per share ($30.58 for POW and $18.04 for LNF), or 16.5% less than what you’d pay for BCE.

In addition to the value proposition of buying two stocks for the price of one — or less, in this instance — I’ve got three big reasons why you should do so.

First, Power Corporation has some interesting investments percolating outside its big 65.6% investment in Power Financial Corp. One of them is Wealthsimple, a 59.8% ownership interest in one of Canada’s leading robo-advisors. On January 7, Wealthsimple announced that it expects to go over $1 billion in assets under management in 2017.

In addition, it just launched a premium service for clients with over $100,000 in investable assets that will charge just 0.4% and provide financial planning, tax planning, the ETF portfolios for your investments, and even a Priority Pass membership that gets you into airline lounges around the world.

Other interesting investments include a 27.8% interest in China Asset Management, one of the first fund companies to set up shop in China with assets under management of approximately $209.7 billion. As the middle class grows in China, this investment could turn out to be a potential printing press.

A third investment that is likely to show promise is Power Corporation’s US$575 million “stalking horse” bid for the assets of Performance Sports Group, the owner of Bauer hockey equipment and Easton baseball equipment. Now under bankruptcy protection, it’s looking more and more like Sagard Capital, one of Power Corporation’s investment vehicles along with Fairfax Financial Holdings Ltd.,will win the assets. Prem Watsa has a nose for value, so I expect this to turn out very well in the long run.

The second reason to buy these two stocks instead of BCE is that combined, Leon’s and Power Corporation provide investors with a 3.6% dividend yield, only slightly less than BCE, but with far more upside potential.

Leon’s did a good job integrating its 2013 acquisition of the Brick, which has led to a 200% increase in revenues since completing the deal, and its growth isn’t done. In 2016, it acquired the leases to eight Sears Home stores across Canada, including four in B.C. Those have been converted to Leon’s locations to go along with its 27 Brick locations in Canada’s most western province.

Now, it’s working on lowering expenses and raising margins, while continuing to grow the existing store network on a same-store basis. It’s a formula that will pay dividends for the family-controlled furniture retailer, and it’s the third reason to own these two stocks, which give you growth and value; BCE does neither.

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Fool contributor Will Ashworth has no position in any stocks mentioned. Fairfax Financial is a recommendation of Stock Advisor Canada.

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