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Warren Buffett Sells Canada: Should You Follow His Lead?

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Earlier this week, I’d discussed one of Warren Buffett’s favourite market indicators. The so-called Buffett Indicator takes the combined market cap of publicly listed stocks and compares it against gross domestic product (GDP). As it stands today, this indicator suggests that stocks are broadly overvalued in North American markets. To make matters worse, Warren Buffett has also soured on some his Canadian holdings.

Warren Buffett: Why he’s not giving up on this energy giant

Berkshire Hathaway has retained its holdings in Suncor (TSX:SU)(NYSE:SU). Back in April, I’d discussed Warren Buffett’s bet on the Canadian oil sands titan. Even then, it was apparent that Buffett had taken some hits as he had kept faith in Suncor. He has remained patient during this tumultuous period.

Shares of Suncor have dropped 57% in 2020 as of close on October 8. The company has been hit hard by plummeting demand in the face of the COVID-19 pandemic. Worse, the OPEC spat hurt commodity prices in 2020. This has resulted in a loss in profitability for Suncor and many of its top peers.

Oil and gas prices have stabilized after a rough patch early in the year. Equally, they have not moved upward in any meaningful way. Suncor is a big player that is not going anywhere. It boasts a price-to-book value of 0.7, putting it in attractive value territory. Moreover, it offers a quarterly dividend of $0.21 per share. This represents a solid 4.9% yield.

Buffett is bailing on this struggling sector

Warren Buffett’s value-investing mantra involves targeting quality companies with stocks that are fundamentally underpriced. Sometimes the best targets are good companies in sectors that have hit a temporary rough patch. The restaurant sector is an interesting test case during the COVID-19 pandemic.

As a fast-food operator, Restaurant Brands International has proven more resilient than many of its peers during this crisis. Still, Warren Buffett’s company Berkshire Hathaway dumped its position in RBI in the summer. Buffett may be done with RBI, but investors may want to consider sticking with this top TSX stock.

Shares of RBI have climbed 7.5% over the past three months. Popeyes, its top brand alongside Burger King and Tim Hortons, has posted impressive results with the introduction of its popular chicken sandwich. RBI has delivered strong earnings growth and offers a quarterly dividend of $0.52 per share, which represents a 3.5% yield.

Should you follow Warren Buffett’s lead?

I’m siding with Buffett when it comes to his steadfast faith in Suncor in 2020. The energy sector is taking a beating, but Suncor is a company worth trusting for the long term. It offers an attractive value right now. However, I’m also high on RBI. Fast-food operators are the only brands I trust in the restaurant sector during this pandemic. RBI is benefiting with its ownership in a red-hot brand like Popeyes, and it offers a bit of income to boot.

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Fool contributor Ambrose O'Callaghan 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 December 2020 $210 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).

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