We’re heading into what I think could be a pivotal 2026. Equities carry valuations we haven’t seen since prior bubbles. And with interest rates elevated, investors do have other alternatives to consider, which makes the potential for a significant drawdown greater than we’ve seen in a long time.
That said, I do think investors will take this opportunity, with so many recessionary red flags flashing right now, to look at adding more defensive exposure within their portfolios. In this regard, I think Restaurant Brands (TSX: QSR) is a top pick to consider right now.
Let’s dive into why this is a top Canadian stock investors should consider as we head into year-end.
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The trade-down trade
One of the dynamics that’s been at play for much of this past year, and I’d argue likely for the past few years, is what many call the “trade-down” effect.
In essence, consumers of all income brackets appear to be shifting their consumer purchases. Those in the higher-income brackets are now shopping at discount retailers at a higher level than we’ve seen in a long time. And those in the lower- to mid-end of the income spectrum are doing the same, and reaching for the discount bin more than they may have in the past.
Inflationary forces are certainly at play in many of the most price-sensitive areas of the market for consumers, and that’s a dynamic I see continuing into 2026. In the restaurant business, I think this will likely translate into weakness among higher-end diners, with those looking to eat away from home likely shifting more toward one of Restaurant Brands’ core banners (Tim Horton’s, Burger King, Popeye’s, Firehouse Subs, and others).
Balance sheet stability matters more than ever
Restaurant Brands is among the most stable companies in the quick-service restaurant sector, with a balance sheet I’d argue is one of the best. As such, I do think a broader investor shift toward quality could benefit investors in this stock in an outsized way.
With a 3.5% dividend yield and a price-earnings ratio that’s historically cheap (for this stock), I think Restaurant Brands’ long-term growth outlook and its ability to continue to provide solid cash flow growth in down markets ought to make this a top pick of institutional investors and hedge fund managers all over the world. It already is.
I’m of the view that big money is flowing toward companies like Restaurant Brands en masse right now for good reason. Those who think the same way and are concerned about potential volatility in the year to come may want to give this stock a hard look right now.
