When Warren Buffett makes a move, the world watches. Investors try to learn why exactly he bought what he bought. Many of his sales and purchases give valuable insights, not just about particular companies but also about the whole sector. His move with airlines is a recent example.
As Buffett is a strong advocate of holding securities for a long time, it’s a good idea for investors to consider some of the older pieces of his portfolio as well. Why did he buy them, and why is he holding on to them? These questions may have important repercussions, because Buffett doesn’t stick with losers. And even though he too makes mistakes in picking up stocks, he has been right way more times than he has been wrong.
If you are revisiting his old investments, considering the current situation of his two favourite Canadian stocks, Suncor (TSX:SU)(NYSE:SU) and Restaurant Brands International (TSX:QSR)(NYSE:QSR), might be a good idea.
The energy stock
With a market cap of $38.8 billion, Suncor is the third-largest energy stock currently trading on the TSX. The company pioneered developing oil sands in the country, and it’s still a leader when it comes to oil sands. It’s a fully integrated energy company and has total assets of over $80 billion. Its total liabilities are nearly half that, balancing the balance sheet nicely.
Suncor was one of the most beloved Dividend Aristocrats, but the oil crisis instigated by the pandemic was too much for the company to handle, and it had to slash its dividends. Currently, the yield the company is offering is about 3.89% at a payout ratio of 90%. This indicates that sustaining its previous payout (double of what it is now), would have been almost impossible.
Still, Buffett hasn’t backed out on this energy powerhouse yet, and when the dust settles, Suncor is likely to be in a stable position. Its oil sands dominance and a strong balance sheet are likely to help its valuation grow when energy demand normalizes again.
The consumer discretionary stock
Restaurants Brands International came into being from a merger partially funded by Buffett’s Berkshire Hathaway, which still owns about 2.8% of the company and is the ninth-largest investor in the company. RBI is the fifth-largest fast-food chain operator in the world. It’s also an Aristocrat, with a modest yield of 3.84%, and a five-year-long dividend-growth streak.
RBI has over 27,000 restaurants in about 100 countries. Its two most well-known brands (and two companies that originally merged to form RBI) are Tim Hortons from Canada and Burger King from across the border. Later, RBI absorbed Popeyes as well.
The company showed decent recovery after the March crash, and it’s currently about 17.6% down from its pre-pandemic high, making it a massive 80% recovery. Though its balance sheet is not as strong as Suncor’s, it’s on the right side of metrics.
Suncor, along with the rest of the sector, is suffering from low demand and uncertain oil futures. RBI, however, is recovering fine, and it’s likely to add both dividends and a bit of capital growth in whatever portfolio it’s in.
Speaking of Warren Buffett’s Canadian stocks...
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares).