2 High-Upside Bets for Low-Risk Investors

Canadians should feel safe buying Royal Bank of Canada (TSX:RY)(NYSE:RY) and another value stock on the next big dip.

| More on:
risk/reward

Image source: Getty Images

You don’t need to bet the farm on stocks that depend on the timely elimination of the coronavirus to punch your ticket to excess risk-adjusted returns over the year ahead. What you do need is the temperament to deal with the recent uptick in volatility and the patience to wait for the best bargains to be thrown your way.

Following the latest market sell-off, there is an abundance of bargains. This piece will look at three that I think are suitable for low-risk investors who don’t want to run the risk of losing their shirts if this pandemic were to drag on into 2023.

Without further ado, consider Pizza Pizza Royalties (TSX:PZA) and Royal Bank of Canada (TSX:RY)(NYSE:RY).

Pizza Pizza

My bull thesis on shares of Pizza Pizza is twofold. First, as the COVID pandemic drags on, Pizza Pizza’s solid delivery infrastructure will allow it to hold its own far better than most other quick-serve restaurants out there. The company is built with delivery in mind and won’t be affected nearly as much if we’re due for another round of lockdowns and dining room closures.

Second, the coronavirus recession could have the potential to be worse than that of the 2007-08 Great Recession or even the Great Depression that followed the crash of 1929. There’s no telling how much more economic devastation we’ll be in for. If we’re not due for a V-shaped recovery, many Canadians will be tightening their belts. With one of the best value propositions in the pizza space, the demand for Pizza Pizza’s offerings, I believe, could be in a spot to surge.

Pizza Pizza is off its pre-pandemic highs, and unjustly so given Pizza Pizza’s delivery edge and its downturn-resilient offering. I think the stock could be headed to the double digits amid the pandemic once investors have a chance to better recognize the firm’s relative resilience.

Royal Bank of Canada

I’ve often referred to Royal Bank of Canada (TSX:RY)(NYSE:RY) as a king among men in the banking scene this year. The bank has seen more favourable provisioning trends versus the likes of its smaller brothers in the Big Five, and its CET1 ratio recently bounced to 12% thanks to its more favourable loan mix.

While Royal Bank won’t be immune to continued COVID-19 headwinds, it does look in much better shape than its peers to weather several waves of worsening outbreaks over the next year and beyond. Shares of RY are down just 16.5% from their all-time highs, with a 1.7 price-to-book multiple, which, while on the higher end as far as banks are concerned, is still modest when you weigh the bank’s degree of pandemic-resilience.

Royal Bank may be one of the priciest bank stocks this year, but it deserves every bit of its premium multiple. As lower interest rates weigh, Royal Bank’s capital markets and wealth management businesses should be able to do more heavy lifting. Royal’s 4.8% yield may not be the richest in the Big Six, but it’s certainly one of the safest.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of PIZZA PIZZA ROYALTY CORP.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »