The Motley Fool

Canadian Investors: Panic Less and Stick With Industry Leaders

The worst may not be over, as the impact of COVID-19 on the economy is yet to be known. However, weak economic indicators suggest that the bad days are ahead and the economy could take time to normalize. Amid such a scenario, it’s prudent to invest in industry leaders, as smaller players could take a bigger hit from the ill-effects of the coronavirus on the economy.

Park Lawn (TSX:PLC)Canadian National Railway (TSX:CNR)(NYSE:CNI), and Royal Bank of Canada (TSX:RY)(NYSE:RY) are three such industry leaders that investors should rely on for capital appreciation and consistent income. 

Funeral services provider

Park Lawn is Canada’s leading funeral and cremation service provider. The death-care industry in itself is recession-resilient. Besides, zoning approvals and government regulations act as a barrier for new entrants. 

The COVID-19 outbreak is likely to put pricing pressure on smaller players, while Park Lawn’s economies of scale and ability to acquire new companies positions it well to benefit from the consolidation in the industry. 

The industry is witnessing increased demand for cremation and memorialization services and promises enormous returns. For instance, Park Lawn’s revenues and profits are growing at a robust rate since 2015. Meanwhile, the company remains well positioned to benefit from its recent acquisitions that added to its cemeteries and funeral home assets. 

With strong top-line growth and operating efficiencies, Park Lawn should continue to post impressive earnings growth, which should support its cash flows and future dividends. 

Transportation and logistics giant

Canadian National Railway is a transportation and logistics leader. The company has a solid track record of delivering strong growth. Besides, it emerged strongly from every downturn in the economy. Canadian National Railway’s revenues have grown at a CAGR (compound annual growth rate) of 7% since 2016. Meanwhile, its net income has grown at a CAGR of 5% during the same period. The company is a Dividend Aristocrat, and its dividends have grown at a CAGR of 16% since 1996. 

While the COVID-19 outbreak could hurt near-term volumes of the transportation companies, Canadian National Railway remains well positioned to benefit from its ability to restructure pricing and TransX acquisition. 

The company’s industry-leading position, diverse and large customer base, operational efficiencies, and ability to consistently generate substantial cash flows make it a top stock amid turbulent times. 

Canada’s largest lender

The low interest rate environment is likely to increase the competitive activity in Canada’s banking space. As the banks compete to grab a bigger share of customers’ wallets, Royal Bank of Canada is set to gain for being Canada’s biggest bank.

While higher provisions, low interest rates, and credit risk pose challenges, the bank’s ability to drive loans and deposits should continue to cushion its top and bottom lines. The bank remains well capitalized and has very little exposure to the vulnerable sectors, which is encouraging.

In the most recent quarter, its loans and deposits increased by 10% and 17%, respectively. Meanwhile, for the first half of the current fiscal quarter, its adjusted efficiency ratio improved to 52.1% from 52.7% in the prior-year period. The bank’s dividends have grown at a CAGR of 7% since 2009 and are safe.

While challenges persist in the near term, Royal Bank of Canada remains well positioned to gain from the economic recovery.

Speaking of strong stocks, here are our best picks:

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

Fool contributor Sneha Nahata 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.