The Motley Fool

Top 3 Canadian Stock Picks for the Next Year

Image source: Getty Images

There’s deep value to be had in the TSX Index right now. If you’re seeking the most significant margin of safety on your search for the most year-ahead upside, you may want to consider my top three deep-value picks. In no particular order, let’s get right into the three names that I think are the best of the best in terms of value at this critical market crossroads.

Brookfield Asset Management

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) is a terrific alternative asset manager that got caught offside amid the coronavirus pandemic. In a prior piece, I’d highlighted the out-of-favour firm as one of my top picks to play a post-pandemic rally.

“Although COVID-19 has knocked shares of BAM off its all-time highs, nothing has changed about the long-term fundamentals, which I think still shine through this haze of uncertainty.” I wrote in a prior piece. “The company has ample liquidity and will likely rise out of this crisis in a position of strength. Moreover, the demand for alternative assets is likely to remain robust in this era of rock-bottom interest rates.”

The company has around $77 billion worth of available liquidity. Don’t act surprised if the firm, led by its brilliant managers, starts shopping around for bargains amid this crisis. Shares of BAM trade below two times book value and are a great way to prepare for an uncertain 2021.

Royal Bank of Canada

You can’t go wrong with Royal Bank of Canada (TSX:RY)(NYSE:RY), which is the gold standard as far as the Canadian banks are concerned. Now, the banks stand to be left holding the bag in a worsening of this crisis that drags various small- and medium-sized businesses underwater.

Given the wide range of outcomes, though, Royal Bank is the bank to bet on if you’re looking for the perfect balance of risk-off and risk-on. The bank demonstrated its resilience in the first half, and as a result, shares are not as depressed as many of its peers in the Big Six.

Royal’s capital markets business remains robust, and with the stock a correction (10%) away from its all-time highs, I’d look to back up the truck before we witness further signs of a recovery of the Canadian economy. Royal Bank stock, I believe, is worth a premium multiple. So, if you seek quality and relative resilience, I’d scoop up RY shares today while they still sport a 4.4% yield.

Manulife

Insurers got slammed back in February and March, and Manulife (TSX:MFC)(NYSE:MFC) was certainly not spared, as shares got cut in half before partially bouncing back. While insurers are terrible investments to own in economic downturns, you have to remember that such a horrific economic environment is already mostly baked into the share price at this juncture.

The stock has been an abysmal performer since falling off the cliff back in the 2007-08 stock market crash. But with shares trading at depths that make them close to the cheapest they’ve ever been, contrarians have to think about initiating a position in the name, as the discount to intrinsic value may have the potential to be profound if it turns out we’re in for a V-shaped economic recovery.

Manulife trades at a near 20% discount to book value and is a wonderful pick for value-focused contrarians who seek upside going into 2021. The deep value to be had in the name is more than enough reason to own the stock, and the 5.8%-yielding dividend is the cherry on top of the sundae.

Also, if you're interested in betting on potential multi-baggers, you may want to check out these small-cap stocks.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.

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.