To keep it simple, I considered companies with matured businesses, stable earnings, consistent dividends, and that are less volatile (have low betas). I zeroed in on Metro (TSX:MRU), which meets those criteria.

Metro operates about 950 food stores under different grocery banners that appeal to both masses and classes. It also has a network of nearly 650 drugstores. Metro’s financial performance is less tied to the economic cycles, implying that the company’s grocery stores and pharmacies will continue to do well, regardless of the economic distress. For instance, people will continue to buy food, household items, and medicines, even when the economy remains depressed.

Investors should take note that Metro stock has been resilient to the recent stock market carnage. Metro stock is up about 7% year to date, as compared to more than a 23% decline in the broader market.

Why buy Metro stock?

Metro’s key performance indicators look solid. The company’s food and pharmacy same-store sales continue to grow at a healthy pace. Meanwhile, margins are in good shape, thanks to the lower operating costs as a percentage of sales.

The company’s food same-store sales increased by 1.4% year over year in the first quarter of fiscal 2020. Meanwhile, pharmacy same-store sales rose 3.6%, reflecting continued growth in prescription drugs and front-store sales.

Metro’s gross margin expanded 20 basis points, while adjusted EBITDA margin increased 130 basis points in the first quarter. The operating expense rate fell 70 basis points. Moreover, the adjusted EPS increased 6% year over year, thanks to the higher sales and improved margins.

The company’s strong financial performance enables it to boost shareholders’ returns through higher dividends. Metro is a Dividend Aristocrat and has consistently increased its dividends for more than 25 years. Metro, during the first quarter of fiscal 2020, increased its quarterly dividend by 12.5%. Moreover, it also increased the dividend payout target to a range of 30% to 40%.

Bottom line

Metro’s product offerings will continue to be in demand regardless of the overall state of the economy, which ensures stable future earnings. The company’s online grocery shopping services currently covers 60% of the population in Québec and in the Greater Toronto Area, which is likely to increase further. The expansion of online shopping services could drive traffic and accelerate sales growth.

Metro stock has a beta (five-year monthly) of 0.17, implying it will not be heavily impacted by the rising volatility and uncertainty in the market. Metro stock trades at a forward P/E ratio of 17.6 times, which looks fair to me. Also, the company offers a healthy dividend yield of 1.6%.

The post Stock Market Crash 2020: Protect Your Portfolio With This TSX Stock appeared first on The Motley Fool Canada.

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To clear up the confusion, I use simple parametres to pick stocks that are trading at a discount and are good long-term bets. To narrow my hunting ground, I consider companies that have performed exceptionally well in the past. However, their stocks are quoting low due to the broader market selloff. Moreover, these companies should be able to easily navigate tumultuous times, like the one we are in, and recover fast when the market returns to normal.

One such stock on my buy list is Alimentation Couche-Tard (TSX:ATD.B), which fits in nicely in all the parametres discussed above.

Why bet on Alimentation Couche-Tard?

Alimentation Couche-Tard has impressed with its strong financial performance over the past several years. Alimentation Couche-Tard’s revenues have increased at a CAGR of 16% from 2011 to 2019. Meanwhile, EBITDA rose at a CAGR of 22% during the same period. Also, adjusted EPS increased by 22% from 2011 to 2019.

The company’s exceptional growth came after strategic acquisitions as well as continued strength in the underlying business. Alimentation Couche-Tard has completed 60 deals since 2004, adding nearly 10,200 stores to its network.

In the nine months of fiscal 2020, revenues remained muted owing to the lower average selling prices of fuel and planned divestments. However, organic sales sustained momentum, which is positive. Further, both the adjusted EBITDA and adjusted EPS have grown at a healthy rate.

Alimentation Couche-Tard’s resilient business model is likely to perform well under the present economic scenario, where growth has slowed and uncertainty prevails.  Investors should take note that convenience store operators generally report above-industry sales growth during recessions. The company’s value proposition, extensive store base, and margin-friendly product mix make it immune to economic downturns. Moreover, its strong balance sheet and capacity to invest in business are likely to fuel future growth.

Alimentation Couche-Tard is also an investor-friendly company, implying that it continues to boost shareholders’ returns through higher dividends and share repurchases. Alimentation Couche-Tard’s dividend per share has increased at a CAGR of 27.8% from 2011 to 2019. Meanwhile, during the third quarter of fiscal 2020, the company increased the quarterly dividend by 12%.

Bottom line

Alimentation Couche-Tard continues to expand its market share in the U.S. through improved in-store offerings. Moreover, expansion in emerging markets is likely to accelerate growth. Alimentation Couche-Tard remains well positioned to benefit from the ongoing strength in its base business. Also, strategic acquisitions will supplement growth further.

Alimentation Couche-Tard stock looks attractive on the valuation front. Alimentation Couche-Tard stock has corrected about 18% so far this year and trades at a P/E ratio of 13.6 times. Strong earnings and dividend growth makes it an attractive long-term bet. Hence, it’s prudent to accumulate Alimentation Couche-Tard stock in stages, as the negative market sentiments could continue to remain a drag in the near term.

The post Market Selloff: Buy This Quality TSX Stock at a Bargain Price appeared first on The Motley Fool Canada.

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Why did the Spin Master stock plunge?

Part of the problem has been the company’s weak financial performance. The decline in sales, margin contraction, and the tepid outlook is taking a toll on Spin Master’s stock price. Spin Master posted a 1% decrease in gross product sales in 2019, which led to a 3.1% decline in revenues. Margins came in weak with the gross margin and adjusted EBITDA margin contracting by 60 basis points and 480 basis points, respectively. Meanwhile, adjusted net income fell about 43% year over year.

Making matters worse, management expects gross product sales to continue to stay low in 2020 and decline in the mid-single-digit range. Notably, the guidance excludes the negative impact of the COVID-19 outbreak. Including the supply-chain disruption from the COVID-19, Spin Master’s gross product sales are likely to go down further.

Investors should note that Spin Master has its manufacturing base in China, which produces about 60% of its goods. With the COVID-19 outbreak, the production flow is taking a hit and not operating at full capacity. Management warned that its second-quarter shipments in particular are likely to take hit from COVID-19, which in turn will affect its gross product sales.

Attractive long-term play

The decline in the Spin Master stock is due to good reasons. However, with the sharp fall, Spin Master stock is trading cheap with negatives priced in. The stock is an attractive long-term play, as the production flow issue is transitory, and revenues will return to growth beyond 2020.

China has successfully managed to contain the epidemic statistics, which implies that production flow will normalize soon. Also, the company is diversifying its procurement activities beyond China with new manufacturing capabilities in India, Vietnam, and Mexico.

Barring near-term headwinds, Spin Master is likely to benefit from its innovative and robust product line. It’s fair to call Spin Master an integrated children’s entertainment company rather than just a toy company. The company’s diversified portfolio of traditional toys, games, digital toys, and entertainment franchises gives it a competitive advantage over peers. For instance, Spin Master’s gross product sales fell by 1% in 2019, as compared to a 3% decline in the industry.

Though sales are likely to remain muted in 2020, the adjusted EBITDA margin is expected to be in line with 2019, which is comforting. Besides, management expects adjusted EBITDA margins to return to the prior 18% level beyond 2020, thanks to its focus on cost management, operational efficiency, and productivity initiatives.

The Spin Master stock trades at a forward P/E ratio 7.9 times, as compared to the industry average (for recreational products) of 10.1 times. Investors should note that the negative market sentiments could continue to limit the upside in Spin Master stock in the near term. Hence, it’s prudent to accumulate Spin Master stock in steps like a systematic investment plan.

The post COVID-19 Casualty: 1 Cheap TSX Stock to Buy for the Long Term appeared first on The Motley Fool Canada.

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Timing the market is neither possible nor essential, but participating in it for the long term is vital in creating wealth. With the extreme slide in the market, it’s prudent to put money in equities, but in steps. It is like starting a SIP (systematic investment plan) directly in fundamentally strong stocks. Accumulating quality stocks by investing at different levels seems a fair idea to me, as the markets are volatile and uncertainty remains.

Here are two such quality stocks you can buy at a bargain. Investors should note that even fundamentally strong stocks could suffer in the near term. Still, the chances of generating stellar returns are higher in the case of these stocks once the market rebounds.

Telus

Shares of the telecom giant Telus (TSX:T)(NYSE:TU) are down about 11% year to date. The decline in Telus stock has nothing to do with its fundamentals but reflects the negative market sentiment due to the COVID-19 outbreak.

The chances are low that Telus’s business will take a hit from the spread of the coronavirus. Besides, it continues to boost shareholders’ returns through increased dividends and share repurchases. The company boasts of returning $18 billion to its shareholders in the form of dividends and share repurchases since 2004.

Telus could continue to post strong financials led by higher data services revenue. The company’s superior infrastructure, extensive fibre footprint, and deals with popular content providers are likely to drive subscriber growth in the coming years and, in turn, its revenues and profitability.

Telus stock trades at a P/E ratio of 14 times and offers a lucrative dividend yield of 5.3%, which makes it an attractive long-term bet and a buy on the dip. Further, with a targeted dividend-payout ratio of 60% to 75%, and its ability to generate strong cash flows, Telus will continue to enhance shareholders’ returns through higher dividends.

Brookfield Renewable Partners 

Brookfield Renewable Partners’s (TSX:BEP.UN)(NYSE:BEP) unique defensive and growth profile makes it a safe long-term bet. This pure-play renewable power company remains immune to economic doldrums, thanks to its long-term power-purchase agreements. For instance, Brookfield Renewable stock is down only about 5% year to date as compared to a massive fall in markets.

Brookfield Renewable’s power output is contracted for the long term and currently has an average remaining life of about 13 years, indicating stable future cash flows. Further, these agreements are inflation-indexed, leading to higher realized prices.  Investors should take note that the gradual shift toward renewable power sources acts as a long-term tailwind for the company.

The company continues to boost unitholders’ returns through higher distributions. Brookfield Renewable’s distributions have increased at an annual rate of 6% since 1999, which is encouraging. Its stable and diversified cash flows enable it to drive distribution growth consistently. Brookfield Renewable expects its annual distribution to increase by 5% to 9% in the coming years.

Brookfield Renewable’s dividend yield of about 5% and stable business make it a buy amid market selloff.

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Dollarama (TSX:DOL) is one such fundamentally strong company that is likely to bounce back strongly. The company’s value proposition makes it resilient to economic doldrums. Moreover, multiple growth catalysts make it an attractive bet for the long term.

Why bet on Dollarama?

Dollarama’s unique defensive and growth nature makes it an attractive long-term buy. The company’s key operating metrics look solid. Dollarama’s revenues have grown at a CAGR of 12.1% in the past eight years. Meanwhile, comparable sales have increased at an average of 5.8% over the last 10 years, which is exceptional. Furthermore, Dollarama’s EBITDA and net earnings have grown at a CAGR of 18.1% and 21.3%, respectively, during the same period. Dollarama’s store count is increasing steadily, growing at a CAGR of 8.2% in the last eight years.

Dollarama’s store count is about 5.5 times more than its next competitor. Being Canada’s largest dollar store chain and having a presence in all the 10 provinces, Dollarama is likely to benefit from its higher store base and strong value proposition. Its broad assortments of everyday goods and multiple fixed price points of up to $4 make it popular among the value-driven shoppers.

The company continues to expand its store network across the country and has launched an online store for bulk sales, both of which augur well for growth in the long term. Also, Dollarama acquired a 50.1% stake in Latin America’s value retailer, Dollarcity, which adds another growth platform.

On the margins front, Dollarama benefits from its low operating cost model and favourable mix. Dollarama’s broad assortment of products comprises of both private labels as well as national brands, which supports margins. Meanwhile, direct sourcing and a low-cost supplier network bodes well for margin expansion.

What’s in the offing?

Dollarama stock has corrected nearly 10.5% since the beginning of the year. Broader market sell-off and the fear of supply-chain disruption took a toll on its stock price. Notably, Dollarama sources nearly 50% of its low-cost merchandise from across 25 countries, with China as the primary supplier. The impact of the virus on production flow in China could delay shipments and result in higher product landing costs for the company.

Despite the near-term hiccups, Dollarama remains well positioned to benefit in the long run. Further, China has managed to significantly lower the epidemic statistics, which indicates less disruption in the production flow.

Management’s mid-single-digit comparable-sales growth projection combined with incremental sales from new stores will accelerate the revenue growth rate in 2020. Meanwhile, earnings are likely to benefit from margin expansion.

Sales leverage, in-store productivity savings, and favourable product mix will drive Dollarama’s profits and, in turn, its stock price higher.

The post Why Buy Dollarama (TSX:DOL) Stock Amid the Market Selloff? appeared first on The Motley Fool Canada.

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Why the market hates Bombardier stock

To give a background, cash-strapped Bombardier is finding ways to deleverage its balance sheet by divesting businesses. Notably, the company has a mountain of debt to be paid in the coming years. Bombardier’s adjusted-debt-to-adjusted-EBITDA ratio stood at 10.9 times at the end of 2019. However, the company is not generating enough cash. Divestiture of the Transportation division will enable Bombardier to pay off a significant portion of its debt and focus on the core Aviation segment. The company expects that the deal will provide it with enough ammo to drive profitable growth in the future.

In the first instance, the idea seems fair to divest assets and underperforming businesses to reduce debt. However, this is where the problem is. Bombardier generates more than half of its revenues from the Transportation division. In 2019, Bombardier posted revenues of $15.8 billion, out of which the Transportation segment contributed $8.3 billion. Meanwhile, the Aviation segment added $7.5 billion. In terms of backlog, the Transportation segment had an order backlog of $35.8 billion, while the Aviation segment had an order backlog of $16.3 billion.

Divestiture of the Transportation segment means Bombardier is exposing itself to a lot of risks. Investors are worried about how the company will fare with only one division, which is highly cyclical. The risk associated with the business aviation sector cannot be neglected, as an economic downturn could pose severe challenges.

Is the market overreacting?

The fundamental objective of Bombardier’s turnaround plan is to lower the debt load and infuse enough liquidity in the business to meet all contingencies. The company has successfully done that in the past. Bombardier sold its CRJ program and Aerostructures business, the proceeds from which helped in reducing net liabilities by $1 billion. The company’s decision to exit from the loss-making commercial aircraft business and the commercial aerospace business turned out to be prudent for all stakeholders.

However, the question remains whether the divestiture of the Transportation segment makes sense for Bombardier’s shareholders. The Transportation segment is facing production ramp-up challenges. Moreover, any delay in achieving technical milestones and software certifications results in additional costs for the company, which negatively impacts its cash flows.

If we look at the recent financial performance, the Aviation segment stands out on all fronts. The Aviation segment’s revenues increased 2% in 2019, as compared to a 7% decline in the Transportation segment’s revenues. Meanwhile, the Aviation segment’s adjusted EBITDA increased 26% year over year, while adjusted EBITDA margin expanded by 200 basis points. In comparison, the Transportation segment’s adjusted EBITDA plunged 75% year over year, while the adjusted EBITDA margin contracted by 690 basis points. The numbers indicate that the Transportation division is a drag on Bombardier’s financial performance.

The bottom line

Whether Bombardier’s decision to sell the Transportation division will have a positive impact on its financials remains a wait-and-watch story. Meanwhile, investors should pause before rushing to buy the Bombardier stock until the business shows some meaningful growth and liquidity improves.

The post Bombardier (TSX:BBD.B) Stock: Don’t Catch This Falling Knife appeared first on The Motley Fool Canada.

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