TFSA investors shouldn’t subscribe to any “dogs of the TSX Index” or “dogs of the Dow” strategy without first putting in their own analysis. Indeed, last year’s biggest losers have room to run, as they turn the ship around once the page is turned on a new year. A fresh, new year is what many 2021 duds needed.
Quality and value could outperform the TSX in 2022
That said, such losers can easily continue losing if the narrative has not changed for the better. That’s why a careful evaluation is needed to ensure one isn’t on the receiving end of even more pain. Remember, losers tend to keep on losing, unless there’s a major change. Such change isn’t easy, and it’s not bound to happen overnight. That said, companies with track records of excellence prior to recent setbacks may be best positioned to thrive, even with a sub-par management team.
Consider high-quality railway giant CN Rail (TSX: CNR)(NYSE: CNI) and restaurant chain holding firm Restaurant Brands International (TSX: QSR)(NYSE: QSR). Both names had a lacklustre 2021, and while they’re not dogs of the TSX, both firms are so much better than their performance in 2021 would suggest.
TFSA stock #1: CN Rail
CN Rail is a great rail operator, and while its stock had a solid year, the finish was terrible, as too was the volatility. Further, CN Rail trailed the S&P 500 by quite a margin. CN is hardly a dog, but investors sure treated the stock unfairly last year, with the failed pursuit of Kansas City Southern railroad and a bitter tussle with activist investors.
CN walked away from KSU. No big deal there. The stock actually saw some relief. But the uncertainty regarding who would replace J.J. Ruest as the top boss was of great concern to shareholders. Recently, CN Rail clocked in solid earnings, with a big announcement: energy veteran Tracy Robinson will be the company’s new CEO.
The quarterly earnings results accompanied a 18% dividend hike. And activist Chris Hohn of TCI was satisfied with the new CEO, putting an end to the fight and proxy vote. Indeed, the track ahead hasn’t been this clear in quite a while! I think CN Rail is a great buy and is in a spot to bounce back in a big way after its stumble into correction territory. With a juicy 1.6% yield, CN is too good a stock to pass up after the latest drop.
For now, the market reaction is mixed. I think it should be positive, with Robinson taking the reins. Simply put, CN looks to be in some excellent hands. It will be interesting to see how much the operating ratio can run from here.
TFSA stock #2: Restaurant Brands International
Restaurant Brands has had a write-off of a year, with lacklustre performance weighed down by COVID disturbances to the supply chain, the labour force, and certain dining rooms. The company can’t catch a break, but as the pandemic ends, I think it’s a fast-food firm with the most room to run. Indeed, the pandemic exposed QSR’s weak points. It doesn’t have the same drive-thru capabilities as some peers. And the nature of Tim Hortons made it tough to shrug off the pandemic, given the work-from-home push.
As things normalize, QSR will be ready to power higher. In the meantime, management is betting big in modernizing its drive-thrus and delivery capabilities. With a fourth brand in Firehouse Subs, it’ll be interesting to see where QSR moves from here. The valuation is modest, and the bar looks low — perhaps too low.
