Many TSX stocks are yet to recover from their pandemic lows. Interestingly, some of them might emerge stronger, while the rest will be value traps that might continue to dig deeper. Let’s discuss three Canadian bigwigs that are well positioned for an upturn in the medium to long term.
Canadian Natural Resources
Despite steep Q2 losses, Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ) stock fared better last month. That’s because there were lots of encouraging signs in its second-quarter earnings report.
CNQ’s production improved in the second quarter, and the trend will likely continue for the second half of 2020. Since the record-low negative prices in April 2020, crude oil has stabilized around $40 levels, which is well above Canadian Natural’s breakeven price.
As business activities normalize and travel restrictions ease in the post-pandemic environment, oil prices could further soar, eventually benefitting oil producers like Canadian Natural.
The energy giant is expected to pay a dividend of $1.7 per share in 2020, indicating a yield of 6.6%. That’s way higher than TSX stocks at large. Considering Canadian Natural’s strong balance sheet and higher free cash flows, its dividends are secured, and a cut seems unlikely.
CNQ stock is still trading 40% lower against its February 2020 levels. It looks attractive from the valuation standpoint and is a great deal for bargain hunters.
Bank of Nova Scotia
One of the country’s top banks, Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) reported a net income of $1.3 billion in the third quarter, a 35% fall compared to the same quarter last year. Its provisions of credit losses during the quarter increased by 18% against Q2 2020.
Higher provisions were largely on the expected lines given its high exposure to Latin America, which is among the pandemic’s worst-hit areas. Scotiabank stock has considerably underperformed peer bank stocks in the last few months and is up a mere 20% since its March lows.
BNS stock yields 6.5% at the moment. Its attractive valuation and juicy dividend yield make it an attractive bet for discerned investors.
Near-term pandemic pressures might weigh on Scotiabank stock. However, its prudent provisioning and diversified earnings will likely help it emerge stronger in the medium to long term.
Restaurant Brands International
Top Canadian restaurant stock Restaurant Brands International (TSX: QSR)(NYSE: QSR) has been trading in a narrow range since May. The stock has lost 12% so far this year.
Restaurant Brands expanded its delivery services and digital presence during the pandemic, which saw a notable demand boost. The drive-thrus also witnessed a positive impact on its revenues throughout North America and will likely continue, as travel restrictions gradually ease.
Quick-service restaurants like Restaurant Brands International will likely show a comparatively faster recovery compared to fine-dining restaurants. The convenience and value proposition posed by Restaurant Brands differentiates itself in the current scenario.
Even though the pandemic has been impacting consumer behaviour, I don’t think there will be any meaningful impact on people’s eating-out habits. Notably, Restaurant Brands’s scale, extensive global presence, and quick adaptability to changing consumer behaviour will likely facilitate a faster-than-expected recovery.
