The current market has its challenges, but it also has its opportunities. Contrarians and value investors are eyeing beaten-up names across the board. But there is another way to play the currently volatile market. This strategy looks at the names that have provided stability since the outset of the coronavirus. Today, we will take a look at three of the widest moats in this group of sturdy Canadian stocks and see why they’re buys.
Buy in May and stay away? Not this year
BCE remains a strong play for interconnectivity and media consumption. Its telco business commands roughly a third of the market share. Media is a strong component of BCE’s business, too. The Movie Network, HBO Canada, Comedy Central, Showtime, and Starz all fall under the aegis of Bell Media through its Crave platform. It makes sense to hold BCE in a portfolio for its strong response to the current market.
From one type of consumption to another, Loblaw Companies has proven a stalwart of the virus market. This name has risen in stature to become the consumer staples stock of the new decade. Granted, we’re not even a year into the 20s. But this retail empire stock is a strong buy for defensive dividends and a diversified business model that has come to penetrate Canadian society at every level.
Look at Loblaw’s range of businesses. From its President’s Choice brand to Joe Fresh, Loblaw encompasses everything from banking services through its PC Financial spinoff to medical supplies via Shoppers Drug Mart. A 1.8% dividend yield looks stable, and with a 41% payout ratio comes the suggestion of growth in the years ahead. Investors should consider building a position in stages, rather than in one bulk purchase.
Diversification is key to stock investing
CN Rail is a buy for its 2% dividend yield and extreme wide-moat standing as one of the best stocks on the TSX. This impressive rail operator offers access to chemical, forest product, coal, and agricultural supplies. It’s arguably our best railway stock, and the only one that boasts transcontinental service. Its revenue is strongly diversified across a broad range of sectors, making for reliable passive income.
CN Rail is a lower-risk play on Canadian oil, for instance. But then CN Rail is also a play for the entire economy. This one dividend stock is essentially a play for all significant industrial sectors in the country. Practically every major supply chain network makes use of its lines at some stage. CN Rail’s share price is strongly defensive, with a 36-month beta of 0.56 that’s indicative of a worry-free investment.
The bottom line
Would-be investors in any of these names may wish to adopt a build-and-trim strategy. This is a lighter touch approach to the usual “back-up-the-truck” method of value investing. One benefit of the current frothiness of the market is that it is sustained. Analysts are eyeing the production of a vaccine as a de facto market backstop. In essence, investors have some time to build positions in key names during periods of weakness.
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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 Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.