When the stock market takes a dive, like it has in recent months, it’s important to remember that quality always trumps cheap. In the words of Warren Buffett, buying an excellent company at a fair price is significantly better than buying a fair company at an excellent price.
In this article, I’ve got three top Canadian picks for all investors to consider that are at attractive prices now.
Royal Bank
As far as quality and size go, it really doesn’t get better than Royal Bank of Canada. Royal Bank is the largest company in Canada by market capitalization. In addition, Royal Bank is one of the top 10 largest banks in the world, thus earning the title “systematically important.” This is perhaps the only Canadian company that is “too big to fail” from a global perspective.
As with its peers, Royal Bank has traditionally paid a generous dividend in the 3-4% range. Now Royal Bank’s yield hovers above 5% on occasion, trading abnormally high for a blue-chip dividend payer of its size. Other benefits of Royal Bank include its liquidity levels and relative safety profile. For those who believe Royal Bank is going to survive this COVID-19 pandemic and come out on the other side stronger, this company is on sale now.
Enbridge
Enbridge (TSX:ENB)(NYSE:ENB) is one of the largest Canadian energy infrastructure options on the Toronto Stock Exchange (TSX). I have been a fan of Enbridge for a long time. However, I have never seen Enbridge this cheap or having a dividend this high since I started following the company.
Right now, at the time of writing, Enbridge is paying a dividend around 8%. This is incredible considering the company’s yield traditionally fell in the 5-6% range prior to this year.
Similar to other energy infrastructure companies I have focused on in the past, Enbridge is in a category of pipeline companies, which I feel have been hit in some ways indiscriminately. I think much of the counter-party risk that has been priced into Enbridge’s valuation is unwarranted. This is particularly true given the incentives producers have to pay Enbridge to get their product to market. In addition, most of Enbridge’s counterparties are large, investment-grade giants. These companies are lower risk and are more likely to continue paying Enbridge.
Brookfield Asset Management
Another mega giant on the TSX, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) has grown into one of the largest publicly traded private equity options in Canada. This is the parent company of a number of subsidiaries. Each subsidiary is focused on specific sub-markets or niche segments. Such segments include infrastructure, property, or renewable energy.
Brookfield’s overall purpose is to invest in “alternative assets” through its subsidiaries. This allows investors to gain exposure either directly by investing in one of its subsidiaries, which are all individually listed, or in the parent BAM.A.
In this case, given the current economic landscape, I tend to prefer the parent Brookfield. Diversification is the name of the game right now. Each of the Brookfield subsidiaries has too much idiosyncratic risk and concentration risk within their portfolios relative to the parent. Real estate is being hit hard on this downturn. Therefore, I’d expect to see some massive checks being written. These funds will give investors and BAM.A the ability to benefit from the “buy low, sell high” strategy that has worked well for Brookfield over the decades.
Stay Foolish, my friends.
