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3 Stock Picks From a Bankless Mutual Fund

Royal Bank of Canada (TSX:RY)(NYSE:RY) and the four other big Canadian banks’ average dividend yield is 3.8%, almost double the Government of Canada 10-year bond yield.

Naturally, dividend investors love these stocks, but interestingly, one Canadian dividend mutual fund — Cambridge Canadian Dividend — managed by portfolio manager Stephen Groff owns none of them.

“It’s not that we hate banks,” stated Groff in an October Q&A in the Globe and Mail. “… We are not predicting Armageddon, but we think there are more headwinds than tailwinds. At the right time down the road, we likely will own banks.”

After learning about the fund from the Globe’s Rob Carrick, I took a closer look at its holdings. From the top 15 as of September 30, here are my three favourites.

Fairfax Financial

Fairfax Financial Holdings Ltd. (TSX:FFH) announced recently that its insurance businesses had cumulative losses of almost US$1 billion in Q3 2017, putting a major dent in its earnings for the quarter.

“The third quarter of 2017 reminded us yet again that ours is a risk business,” Watsa said in its Q3 2017 earnings call.  “Losses for the property and casualty insurance industry from these catastrophes are estimated to be perhaps $100 billion plus. Our companies’ share of the losses amounted to $960 million.”

Insurance is one of those things you don’t need until you do, and companies such as Fairfax are paid handsomely to underwrite the risk.

Back in September, I’d stated it was time to get back into Fairfax stock. It’s up 16% since I made the call, and nothing that’s happened regarding the catastrophes this past summer and fall has altered my opinion of the company.

It’s a great long-term hold.

Intact Financial

Of the 14 other companies in the top 15 holdings, Intact Financial Corporation (TSX:IFC), despite also being a property and casualty insurer, is my second favourite of the bunch.

Why?

It has a lot to do with the job CEO Charles Brindamour has done growing the company since taking the chief executive role in 2008.

As I highlighted in September, Brindamour is laser-focused on producing underwriting profits at the company, the backbone of any successful insurance company over the long haul.

“In the nine years at the helm, Intact has only had one quarterly underwriting loss in 2013,” I wrote. “Otherwise, Intact has been paid to invest its float in the same vein as Berkshire Hathaway, which has allowed IFC to grow its investment portfolio from $7.2 billion at the end of 2007 to $14.9 billion as of June 30.”

Up until its September 28 acquisition of OneBeacon Insurance Group, Ltd., Intact was primarily in the Canadian insurance market. Now, it can grow its U.S. platform with OneBeacon leading the charge.

The largest property and casualty company in Canada is about to make some noise in the U.S., and that’s a good thing.

TFI International

If you haven’t followed the shipping and logistics industry in a while, TFI International Inc. (TSX:TFII) isn’t some “Johnny come lately.” Rather, it’s the new corporate name of TransForce, one of North America’s biggest players in the shipping business.

Since I last wrote about TFI International in early September, it’s basically gone sideways, providing interested investors a good entry point.

One of the problems was the company’s truckload business, which has been experiencing weaker pricing for most of 2017. Portfolio manager Barry Schwartz appeared on BNN at the time, suggesting that segment of its business would improve in the second half of the year.

TFI International announced its Q3 2017 results; here’s the Reader’s Digest version.

Revenues increased 17% to $1.05 billion with all but its Package and Courier segments delivering positive year-over-year growth. CEO Alain Bédard commented in its press release that the U.S. truckload market is improving, and that should be reflected in higher contracted shipping rates in 2018.

Profit wise, TFI International is still a little wobbly with its Q3 2017 adjusted net income from continuing operations down 8.8% to $48.8 million. On the plus side, its operating cash flow increased 46% in the quarter to $128.9 million.

Expect this fly-under-the-radar stock to become more familiar to investors in 2018. That’s good news for a stock that’s been languishing the past year.

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Fool contributor Will Ashworth has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares). Fairfax and Intact Financial are recommendations of Stock Advisor Canada.

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