Tax-Free Savings Account (TFSA) investing requires strong names with decent valuations and solid balance sheets. Barbell investing additionally involves balancing long-term growth with short-term recovery. Today we will look at two names that could satisfy a fairly low-risk investment thesis with multi-year financial goals.
The long-term safety stock
When it comes to passive income investing, safety is the order of the day. A second severe market correction could be on the way. Think of it as a moment of realization – a moment in which investors wake up to the reality of the current dual economic-pandemic crisis.
And it is a crisis. Fiscal stimuli can only go so far. At some point the safety net will be removed – and almost certainly before a vaccine is available.
CN Rail (TSX:CNR)(NYSE:CNI) is one of the country’s best companies. Spanning three coasts, CN Rail is a wide moat infrastructure empire and one of the strongest operational components of the Canadian economy.
CN Rail therefore offers a stable place for investors to park their cash ahead of another leg down. Its continent-straddling rail network allows access to just about every major sector in the country. A 1.9% dividend yield is on offer, adding the prospect of compounding passive income over the years.
CN Rail is still currently undervalued as the markets cater to riskier appetites. But that will likely change over the near-term. Rapid change is likely to typify a choppy second half of the year. CN Rail is therefore a suitable low-risk stock that belongs at the safe end of a barbell portfolio. But what can Canadian investors balance it with for shorter-term gains?
The all-weather stock that could double in price
Consumer durables don’t get enough press. But there is one stock in this asset class that is recession-proof. Take a look at Spin Master (TSX:TOY). This is an overlooked name that could be made of solid upside. While a P/B of 2.7 is not suggestive of undervaluation, a high price target of $55 could see shares double in value given optimal market conditions.
Now look at Spin Master’s market ratios in conjunction with the market value of toys. This is a sector that is conservatively estimated at between $80 and $100 billion. It’s also a mess in terms of operational strategy. A well-established name could clean up in this environment.
Spin Master is a one-stop shop when it comes to business operations. Its output is dominated by a portfolio of in-house created, manufactured, and retailed properties. A comprehensive five-segment spread of product types is catered for outdoor, interactive, boys, girls, activities, and plush.
Its market penetration model also leans into acquisitions, commanding a +100 market international presence.
High debt and low savings meant that households are unlikely to be spending as much in the near-term. The pandemic caught households in bull mode. Savings have been eaten into — and will take years to rebuild. But certain consumer durables will remain must-haves.
Toys belong among the perennial purchases within that asset class. As such, even a prolonged recession could see Spin Master remain solvent.