I continue to hold the perspective that we’re due for another leg down in equity markets this year. I don’t think the stock market is fully pricing in earnings weakness. I think as we see third and fourth quarter results come in, a marked shift in consumer sentiment will take hold.
As such, 2021 could be a make-or-break year for investors. Here are three picks I’d hold off on buying until 2021 (at the earliest). In other words, don’t be too eager to buy these names.
A leader in North American garbage collection services, Waste Connections (TSX:WCN)(NYSE:WCN) is, in many ways, the highest quality company in its sector. Waste Connections has the best margins of its peers. The company has grown its network both organically and via acquisition in recent years, posting a very respectably growth rate for investors.
The recent earnings reported by Waste Connections showed earnings and cash flow strength, indicating consumers have qualified the essential nature of the services this company provides.
I think we’re about to see more broad equity market weakness on the horizon. I’d therefore hesitate to recommend buying Waste Connections stock at this level. While this stock is high quality, it certainly isn’t cheap. Entry point does matter. That said, having this stock on your shopping list is always a good idea, particularly if it goes on sale.
Any Environmental, Social, and Governance (ESG) play seems to be a pretty safe pick. I don’t see investor interest for renewables waning any time soon. Brookfield Renewable Partners (TSX:BEP.UN) is a great pick for a “2021 and beyond” time frame. This Brookfield subsidiary holds a portfolio of high-quality renewable power assets which will only increase in value over time.
The company’s mid-single digit dividend yield is attractive. Moreover, it’s likely to grow in line with earnings over the long-term. This is a great long-term stock to buy and hold. Make sure you update your watch list with this gem.
Should we see another leg down in the stock market, companies like BRP Inc. (TSX:DOO) could get hit pretty hard. Any company that is highly correlated to overall economic performance and discretionary consumer spending is likely to be punished in the near-term, should volatility pick up again.
That said, such companies do tend to rebound the most from such declines. Coming out of a recession, stocks like BRP are the ones to own. I’d highly recommend adding this stock to your watch list for now and checking in on the company periodically.
If the conditions are just right, highly cyclical stocks like this can outperform for years, as we saw with this previous decade-long bull market.
Knowing when to take the plunge is key..
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned.