Finding a top TSX stock to buy and hold for the long term isn’t as easy as it sounds. Many high-flying growth stocks continue to outperform, and the Canadian market is no different. That said, I’ve long pounded the table on Restaurants Brands International (TSX: QSR) as one of the best Canadian stocks in the market. That view hasn’t changed.
For the most part, Restaurant Brands’ stock price has traded in a relatively narrow band. Here’s why I think more upside could be ahead, and July looks like a great place to add exposure to this Canadian gem.
Quick-service restaurants are recession-resistant
For those concerned about a potential upcoming recession, finding truly recession-resistant stocks is important. Restaurant Brands certainly appeals to me as a top option in this regard.
The company’s business model is relatively easy to understand. The umbrella company overseeing the Tim Horton’s, Burger King, Popeyes and Firehouse Subs, Restaurant Brands benefits from continued growth from existing patrons and new patrons around the world each and every day. In good times, those with a little extra money to spend eating out may choose to do so at one of the company’s locations. However, when times get tough and diners take a look at their shrinking wallet, trading down to lower-priced menu options, such as those provided at the company’s locations, can be increasingly attractive.
During previous downturns, fast food operators generally saw a significant uptick in activity. I think that won’t be any different this time around.
Yes, inflation has hurt this narrative to a certain degree. However, Restaurant Brands has retained some of the best pricing in this sector, making it an attractive bet for those looking to cash in on the trade-down.
Fundamentals remain strong
Supported by more than 31,000 restaurants globally, Restaurant Brands provides the sort of cash flow and dividend growth many long-term investors want to see. The company’s US$43 billion in system-wide sales continues to grow, with investors seeing better than 550% returns on their invested capital since 2012.
Few companies can say that. As earnings continue to grow in line with revenue (holding margins steady), I think the company’s current price-earnings multiple of less than 18 times is very attractive. And with a dividend yield of 3.4% at the time of writing, this is a stock that appeals to a broad swath of investors.
Bottom line
We could indeed see a recession brewing on the horizon. Whether such a recession is local or global really depends. But in any event, companies like Restaurant Brands with diversified operations and the ability to benefit from trade-down effects could be among the best-positioned to outperform.
My base case is that some sort of downturn is ahead. We’ve skirted a recession for a very long time, but they tend to happen in cycles. As we approach the end of this coming cycle, QSR stock is one I think is worth sticking with.
