If you are a long-term investor, there is no need to worry about possible bear markets in the near term. It’s natural to worry, as more people start to talk about it and more red lights flash, and it’s natural to not want to see the market value of your investments decline.
What’s important to remember, though, is if you have your long-term strategy planned out and you are ready for a recession, it can actually be a great thing, as it offers investors the best opportunity to buy even the best of companies at a steep discount.
As the stock market peaks, valuations will be high anyway, so for most value investors, you have probably been accumulating cash over the past year, through dividends and lack of value opportunities in the market.
This is ideal, and it reflects Warren Buffett’s balance sheet, which has done the same. Buffett hasn’t made a large acquisition in a few years, and his cash has now gotten to record levels, sitting over US$120 billion, or nearly 60% of his portfolio of public companies.
It’s clear Buffett is waiting for better value, as this isn’t the first time he’s done this, and so should you.
In addition to welcoming a recession due to the bargains that come with it, investors shouldn’t be worried anyway, if their portfolio is already constructed with top names in recession-proof industries.
TC Energy, formerly TransCanada, is a pipeline and energy infrastructure company with a variety of businesses. It has natural gas pipelines, liquid pipelines, as well as a power-generating business.
TC Energy is an ideal stock to own for the long term because of its solid operations across its many businesses.
While investors had some worries about the company the last few years, it has done a brilliant job alleviating those fears, and that can be seen in its stock price, which is up roughly 35% year to date.
The company continues to diversify out of Western Canada, especially with its Columbia acquisition in the U.S. It also has a number of growth assets in Mexico that should grow alongside the country’s increasing demand for gas.
Its operating performance has been impressive the last few years, with return on equity averaging 15% since 2017. The increase in efficiency by the company is evident when looking at operating performance, as it’s clear it is improving its margins each year, driving much higher profitability, especially combined with the growth in revenue.
Its balance sheet is in reasonable shape as well, with total debt to earnings before interest, taxes, depreciation, and amortization of roughly five times. It’s total debt to equity is also respectable at just 1.6 times.
The dividend is another reason for an investment. Currently, it pays out $3 a year, which gives it a yield of nearly 4.4%. On top of a dividend that’s already attractive, TC Energy has plans to raise that 8-10% per year until 2021.
Although it’s had its stock price run up this year, at a price-to-earnings ratio of just 15.6 times, the stock could still warrant an investment today, but investors should watch for a fall in the price if there is a market crash and scoop up a fairly large position when available.
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 Daniel Da Costa has no position in any of the stocks mentioned.