The sharp comeback of TSX stocks saw the TSX Composite Index jump 5% in three days after falling almost 10% in 45 days. Once again, the US Fed’s decision to keep interest rates unchanged was behind the rally. But how long can the stock market sustain this 5% rally? The holiday season is upon us. November will see the Black Friday sale and Christmas shopping gather pace. Holidays could increase flight bookings and a drop in the temperature will see a rise in energy bills.
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November stock picks
In this festive season, here are three TSX stocks that are a must-own for every Canadian looking for growth and dividends.
Bombardier stock
Bombardier (TSX: BBD.B) stock jumped 10% as the company reported strong third-quarter earnings. The business jet maker delivered 31 aircraft, 6 extra from last year, and is on track to deliver 56 aircraft in the fourth quarter. More aircraft deliveries mean more revenue for the business jet maker and higher profits for the company. The company has started realizing revenue from the aftermarket business, which grew 11% to US$414 million.
The restructuring of business in the last two years has made Bombardier a resilient company that can handle crises. It has a comfortable US$1.2 billion in liquidity. It maintains a two-year no-debt maturity window. At a time when debt is pulling down the profits of the big guns, Bombardier is opting for a debt-light model as it has suffered near bankruptcy because of debt.
Bombardier fundamentals make it a screaming buy whenever the stock falls. The latest earnings show the speed at which the stock recovers. The company will benefit from 56 aircraft deliveries in the current quarter. Even now, there is time to buy the stock while it trades at $50. The stock could surge past $65 in a bull market and generate long-term growth.
Air Canada stock
I was bearish on Air Canada (TSX: AC) last year, but the airline has surpassed the stressed environment and enhanced its balance sheet. The airline’s two biggest roadblocks were negative cash flows and piling debt. It turned cash flow positive this year and rapidly reduced its net debt to $5.4 billion.
As long as Air Canada enjoys decent air traffic and air fuel cost remains at reasonable levels, it can remain cash flow positive. Hence, you will see volatility in the stock. Whenever the crude oil price rises and air traffic falls, AC stock could be pulled down. The debt has, however, made it a range-bond stock. A price point at or below $18 is a buy, and $24 is a sell as the seasonality will fade.
Canadian Utilities stock
The above two stocks can bring you range-bound growth only if your entry timing is correct, as they have a limit beyond which they can’t grow. You need a dividend stock to stabilize your returns. Canadian Utilities (TSX: CU) is a dividend aristocrat that is gradually building its seasonal rally. After falling 27.3% between May and October, the stock has picked up growth as the temperature begins to fall.
Canadian Utilities produces and sells electricity and natural gas. Every winter, the stock begins to rally between November and December. But it reaches its seasonal peak in the first week of February. The stock has just begun its rally, rising 8%. You can still buy the stock at $31.50 and lock in a 5.7% dividend yield. It could jump to $37-$40. If you are buying the stock for immediate returns, you can sell it in February or hold it for the long term to enjoy regular quarterly dividends.
Investing in November
Investing in November can be a challenge in a normal economy as the holiday season tends to push many stocks to their seasonal highs. The trick is to sell the stocks that reached their seasonal peaks and buy those that will grow in February. Just as you prepare your home, your wardrobe, and your kitchen for a seasonal change, you can prepare your portfolio too and book timely profits in seasonal stocks.
