Are you looking to invest a “medium-sized” sum of money — let’s say $5,900?
If so, you need to know where you will put that money to work. While it’s tempting to talk to a bank advisor and invest in whatever they recommend, this sometimes results in you being invested in high fee funds. So, you need to know what you own.
One partial exception to the rule above is low-fee broad market index funds. When buying such funds, you don’t need to know much more than the fee structure, level of diversification and whether the fund is subject to leverage risk.
As for individual stocks, you need to know more. The trade-off is that with such stocks, you pay no management fees at all! With that in mind, here’s where I’d consider investing $5,900 in the TSX today.
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Energy
The first place I’d invest $5,900 today is in Canadian energy stocks. Such stocks are pretty cheap right now despite the fact that they have been performing well over the last few years.
We can illustrate this principle by looking at Suncor Energy (TSX:SU). It’s a very cheap stock, trading at 9.3 times earnings, 1.2 times sales and 1.4 times book. Despite these low multiples, the stock has been performing well lately, with a 16% free cash flow margin and 16% free cash flow growth in the trailing 12-month period. The stock also sports a 4.6% dividend yield. Overall, I would imagine that those buying Suncor today will do reasonably well over the long run.
Financials
The TSX financial sector is another place where I’d invest $5,900 today. TSX bank stocks are cheap and usually have high dividend yields.
Consider Toronto-Dominion Bank (TSX:TD). This is a Canadian banking stock that I bought cheaply last year. It’s outperformed the market this year, but I still think it has room to run. The stock trades at just 12 times earnings and 1.3 times book value. Despite the cheapness, TD is actually growing pretty rapidly, with revenue up 9.1% in the previous quarter and 21% in the trailing 12-month (TTM) period. The TTM figure includes a one-time investment gain, but nevertheless, 9.1% top-line growth is pretty good for a stock trading at just 12 times earnings. Also, TD has a large buyback program underway; the buybacks are driving considerable stock price appreciation.
Utilities
A final place where I’d invest $5,900 today is the TSX utility sector. Utilities aren’t as cheap as energy companies and banks, but they have very stable, monopoly-like revenue streams.
Take Fortis (TSX:FTS) for example. It’s a utility company that holds various utilities across Canada, the U.S., and the Caribbean. It’s not as cheap as TD and Suncor, trading at about 20 times earnings. However, it has an excellent dividend-growth record, having raised its payout every year for 51 consecutive years.
I don’t actually own Fortis stock, as I do TD and Suncor. However, I would, in principle, be willing to own it were I not fully invested in other things. It’s a long-term compounder stock that has enriched investors over the years.
