One of the greatest threats to investing success is our emotions. Human beings aren’t wired to manage the highs and lows of the stock market in a logical manner. Therefore, our emotions can cloud our judgement, which can lead to costly errors

A common emotional error is getting caught up in the market hype instead performing thorough research before buying a stock. A specific example of this is the tech bubble in the early 2000s. Investors were caught up in emergence of the internet and didn’t want to miss out on this “exponential growth.” People were pouring money into companies with little to no earnings, which eventually led to a market crash.

A simple way to prevent these potential pitfalls is by using a stock-picking checklist. A checklist creates a systematic approach to researching stocks and provides reminders of the most important factors to consider before buying shares in a company.

Here are two points that should be on every investor’s checklist.

Dividend history

For dividend stocks, the distribution history can provide a clear picture of the company. Investors should look for companies that were able to maintain or even raise their dividends during down markets. If a company has cut its dividend in the past or has high payout ratios, the company may not be operating within its financial constraints, which could lead to more issues down the road.

One company with a fantastic dividend history is Fortis Inc. (TSX:FTS)(NYSE:FTS). The company has raised its dividend 43 consecutive years; therefore, investors have reason to believe the company will preserve and grow its yield for the foreseeable future.

Management’s track record

The tone from the top can have a trickle-down effect on an entire company, therefore, it’s critical that an ethical and disciplined management team is at the helm. Investors should also look for management teams that have a significant portion of their wealth tied to the company. This will help ensure that management’s and shareholders’ interests align and increase investors’ chances of significant returns over the long term.

Fairfax Financial Holdings Ltd. (TSX:FFH) is a company with a first-class management team in place. CEO Prem Watsa has generated an average annual stock price return of 18.6% over 31 years! In addition, this billionaire CEO only receives a salary of about $625,000 while a large portion of his wealth is tied to the company. Therefore, investors can take comfort in knowing Watsa will do his best to generate market returns over the long term.

Foolish bottom line

There are obviously many things to consider before buying a stock, but beginning with these two points is certainly a step in the right direction. A stock checklist will help ensure you remain objective and keep your emotions in check; therefore, I recommend that every stock picker uses them.

For those about to Fool, we salute you!

The post 2 Things That Should Be on Your Stock Checklist appeared first on The Motley Fool Canada.

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Bear markets are an inherent risk when investing in the stock market. These 20% or more declines happen on average once every three-and-a-half years.

However, now that we are in the eighth straight year of a bull market, investors are left wondering when a bear will make an appearance. It’s impossible to predict when it will arrive, but we can adjust our asset allocation to mitigate the damage.

A simple way to do this is invest in defensive stocks with low betas. Beta is a metric that measures a stock’s volatility in relation to the market. If a stock has a beta of one, its volatility is aligned with the market. If a stock has a beta of 0.5, it’s half as volatile as the market. However, if a stock has a beta of two, the stock is twice as volatile as the market.

With this in mind, investors may want to consider acquiring companies with low betas. Fortis Inc. (TSX:FTS)(NYSE:FTS) and BCE Inc. (TSX:BCE)(NYSE:BCE) are two defensive stocks with low betas, but do they justify a buy at current valuations?

Here’s a quick look at both companies.

Fortis Inc.

With 97% of Fortis’s $48 billion in assets being regulated, the company has been able to generate strong and consistent cash flows.

In addition, management has effectively managed its capital with average return on equity of 7.4% over the past five years. The combination of stable cash flows and competent management has resulted in a company with a beta of 0.02 and dividend yield of 3.5%.

However, investors need to also consider the stock’s current valuation and outlook. The company’s price-to-earnings and price-to-sales ratios are above the company’s five-year averages, indicating investors may have to overpay for its safety.

In addition, utility companies tend to feel the wrath of rising interest rates. This threat may not be imminent, but when you’re investing for the long term, this should be considered.

BCE Inc.

The company has continued to generate significant free cash flow while providing investors with a juicy dividend yield of 4.85%.

BCE was able to grow both its wireless and internet subscribers by over 8.6% in the past year. This is impressive considering that the telecom industry tends to be a low-growth industry.

From a valuation perspective, the company’s current price-to-earnings and price-to-sales ratios are at 18.5 and 2.4, respectively. Both of which are above the company’s five-year averages of 16.7 and 1.9. Therefore, investors may want to wait from a more attractive valuation before buying shares in the company.

Foolish bottom line

Obviously, it’s good to have great companies with minimal volatility in your portfolio; however, it’s critical that you don’t overpay for these companies. Until the valuations of these stocks become more attractive, I’d refrain from adding them to your portfolio.

Fool on!

The post Should Investors Look to These 2 Low-Beta Stocks for Stability With a Bear Market Looming? appeared first on The Motley Fool Canada.

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As young investors know, it can be intimidating and scary putting your hard-earned money into the market. However, young investors have the greatest asset in investing on their side: time. By continually putting money into the market and buying and holding great companies, young investors can realize the true power of compounding interest.

Here are a few tips for young investors to ensure they can obtain financial freedom.

Invest internationally

A common mistake investors make is taking the advice “invest in what you know” too literally by only investing in Canadian equities. Canada is only the 10th-largest economy in the world and is top heavy in banks, energy, and materials. Therefore, it’s difficult to properly diversify by investing in Canada when its economy has such a narrow focus.

The easiest way to solve this issue is to invest in our neighbour to the south. The U.S. economy is the largest in the world and accounts for 24.5% of the world’s GDP. Therefore, investors should either invest directly in U.S. equities or buy Canadian equities with significant exposure to the U.S. Toronto-Dominion Bank (TSX:TD)(NYSE:TD) falls under this category as over 40% of its net earnings came from the U.S. in the latest quarter of 2017.

Stay patient

A history has shown, the market generally yields a return of 7-8% over the long-term; however, the ascent is not linear. There will be many bulls and bears during the investing journey, and an investor’s success will be contingent upon their ability to manage these highs and lows. It’s critical that a long-term view and emotional discipline be maintained. This isn’t a “get-rich-quick” strategy, but being patient will create the best chance of investing success.

Never stop learning

Complacency is a major threat to investing success. The world is rapidly changing, and it’s critical that you continue to increase your knowledge base and are aware of the market conditions. The work has just begun once you purchase shares in a company, as you’ll have to continue to monitor the company’s performance, and ensure that its long-term prospects still align with your initial hypothesis.

Other than the Fool’s stock advisory services, I highly recommend reading the annual reports of potential stock picks and its competitors. There is a wealth of knowledge in these reports, and they can help ensure all the available information is considered before purchasing a stock. As Warren Buffett says, “Risk comes from not knowing what you’re doing.” Therefore, it’s critical that investors continually educate themselves.

Foolish bottom line

If stock picking and investing were easy, then everyone would be piling their money into the markets. However, human beings aren’t wired to invest for the long term, and it’s critical that investors keep an even keel and think logically rather than on emotion. By implementing and adhering to the three tips above, young investors will improve their chances of success!

Fool on!

The post 3 Things Every Young Investor Must Do appeared first on The Motley Fool Canada.

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To obtain above market returns, it’s critical for investors to buy shares in great companies that are severely undervalued. This approach creates asymmetric risk, which means the potential upside significantly outweighs the possibility of the stock price plummeting further.

A common place to find these value opportunities are sectors in which investors are fearful, resulting in large sell-offs and causing stocks within these sectors to become cheap.

As of late, alternative mortgage lenders have felt the wrath of large sell-offs. The share prices of these companies plummeted in late April 2017 due to the Home Capital Group Inc. (TSX:HCG) investigation and investors’ fear of a housing market correction.

However, with Warren Buffett’s investment in Home Capital and his vote of confidence in the Canadian housing market, should investors be looking to this sector for value opportunities?

One company that investors might consider in this sector is Equitable Group Inc. (TSX:EQB). Here’s a quick look at the company.

Overview

Equitable Group is the second-largest alternative lender in Canada. The company has grown its earnings by targeting smaller markets that aren’t well served by the Big Five banks. This focus has resulted in its earnings growing by an annual average rate of 15.3% over the past seven years!

In addition, when the Home Capital debacle occurred, Equitable Group reported its impressive Q1 2017 earnings. The company generated a return on equity that was higher than the big banks while maintaining a low-risk lending profile.

Releasing record profits while a company’s competitors are in crisis mode is generally indication of a great company.

Valuation

The company is currently trading at a price-to-earnings ratio of six and a price-to-book ratio of 0.96. Both are below the company’s five-year averages of eight and 1.3, respectively. Therefore, investors won’t have to overpay for a company with a strong history of earnings.

In addition, the company has grown its dividend by an annual average rate of 11.8% while maintaining a payout ratio below 12% over seven years. Although the yield is only 1.68%, the management team has demonstrated its ability to return earnings to shareholders, while staying well within the financial constraints of the company.

Foolish bottom line

In a market where it’s tough to find undervalued companies with strong earnings, Equitable Group certainly presents a unique opportunity. Obviously, it would have been nice to acquire the stock when it dropped almost 40% in late April; however, it’s still cheap based on historical earnings. I’m not rushing in at this point, but the company is definitely on my watch list.

Keep Foolin’ around!

The post Has the Housing Market Created an Opportunity to Buy This Stock? appeared first on The Motley Fool Canada.

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It’s no secret that dividend stocks are a fantastic option for investors close to retirement. These types of stocks provide regular income with the opportunity for capital appreciation, which can result in significant returns. In addition, dividend stocks tend to be less volatile than non-dividend-paying stocks, creating greater stability for RRSP investors that are close to withdrawing their funds.

One sector that RRSP investors frequently look to is real estate. Many companies within this industry generate strong cash flows and provide juicy dividends. Most importantly, RRSP investors can obtain exposure to a time-tested investment vehicle without the headaches of becoming a landlord.

Pure Industrial Real Estate Trust (TSX:AAR.UN) and Allied Properties Real Estate Investment (TSX:AP.UN) are two companies RRSP investors should consider in the real estate industry.

Here’s a quick look at both companies.

Pure Industrial REIT

Pure Industrial owns a diverse portfolio of industrial buildings throughout North America. Industrial buildings are a great play on the expected rise of e-commerce. As the demand for warehouses and distribution centres should continue to be high, Pure Industrial should have no trouble maintaining its occupancy rate of 96.3%, which, in turn, further secures the company’s future cash flows.

From a valuation perspective, the stock is cheap based on its historical earnings. The stock is currently trading at price-to-earnings ratio of 7.1, which is well below its five-year average of 10.5 and the sector median of 13.8. Therefore, investors don’t have to overpay for a company with a steady dividend yield of 4.64%.

Allied Properties REIT

The company owns a well-diversified portfolio of office buildings in nine of Canada’s largest urban centres. Not only is the company diversified geographically, but its largest tenant only accounts for 3% of its total revenue. Therefore, the company’s earnings are not dependent on one or a few larger tenants, which is a drawback for some REITs.

One of the most attractive features of Allied Properties is management’s history of reinvesting capital. Over the past six years, the company has a produced an annual average of over 14% return on equity. In addition, the company has been able to grow its funds from operations by an annual average of 9% during the same period. Therefore, management should be able to sustain its current dividend yield of 3.98%, while continuing to grow its operations.

Foolish bottom line

With these two REITs, RRSP investors will be adding two quality stocks with reliable dividends. Both companies maintain dividend-payout ratios below 35%, meaning investors can take comfort knowing the dividend yields are well within each company’s financial constraints. Therefore, RRSP investors should buy and hold these great REITs and watch those returns compound!

Fool on!

The post RRSP Investors: 2 Quality Dividend Stocks for Retirement appeared first on The Motley Fool Canada.

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On July 12, 2017, Aphria Inc. (TSX:APH) reported its fourth-quarter results, and the company hit one out of the park. For the seventh consecutive quarter, the company generated a positive EBITDA with an increase of 181% over the previous quarter and a 962% increase over the past year!

Although this is incredible growth, the EBITDA only amounted to $2.8 million, and the stock is currently trading at a whopping price-to-earnings ratio of 212. Therefore, does it make sense to overpay for a small-cap company that has a valuation built on the anticipated recreational marijuana market?

There’s no doubt that the valuations of Aphria and other marijuana producers are too high based on traditional valuation methods. However, the potential recreational market provides an extremely rare opportunity. Lifting the prohibition of the most used illegal substance could result in significant gains for investors.

However, like any investment, it’s critical that investors understand the potential risks associated with an investment before putting money into the market. Two of the biggest issues that Aphria and other producers face are

1. The illicit market: Will illegal suppliers be able to undercut legal producers?
2. Provincial regulations: How will it be sold in each province?

Here’s how both of these issues will affect Aphria.

Illicit market

Fortunately for Aphria, it’s in the best position among producers to outlast the illicit market. The company has established itself as a low-cost producer and is continually improving its margins. In the last quarter alone, the company was able to reduce its all-in costs by 25%, bringing its all-in production costs to $1.67 per gram.

With the average price of marijuana sitting at $9.12 per gram in Canada, Aphria has significant room to remain profitable, even if the illicit market tries to undercut legal producers.

Provincial regulation

Unfortunately, there is little transparency over this issue, as there has been backlash from provincial legislation as to how marijuana will be sold, regulated, and policed at the provincial level. However, I believe this isn’t as much of an issue for producers as people think.

At the end of day, the supply and demand is there, and there should be enough momentum to eventually push this through. Since Aphria is at the supply end of the chain, it should be able to continue to sell its product as long as the demand continues to be there.

Whether marijuana is sold at convenience stores, liquor stores, or only online, Aphria will be able to find a way to get its product to customers. It just may take some time to determine how it will be eventually sold at the provincial level.

Foolish bottom line

I firmly believe that Aphria has a “good thing growing” and is in the best position among publicly traded producers to succeed in the recreational market. However, this is still a risky venture, and it could take some time for the recreational market to come to fruition.

Therefore, if you do decide to “take a puff” of Aphria, make sure you can handle the short-term volatility and maintain a long-term view.

Fool on!

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There is no doubt that the lifting of prohibition could result in a massive recreational marijuana market. However, with absurd valuations and the industry’s future significantly dependent on the government, should investors be steering clear of pot stocks?

Clearly, companies within this industry are not core holdings; however, I do believe there is a significant opportunity for growth.  The question is, which company is best positioned to capture this growth and realize significant returns for investors once marijuana becomes legalized?

Although it’s difficult to quantify the intrinsic value of these stocks, management’s performance can be evaluated within these companies and provide insight towards its future performance. In order for businesses to be successful over the long term, a company needs a CEO who is a disciplined capital allocator, and Aphria Inc. (TSX:APH) certainly has one in Vic Neufeld.

Here’s a look at two moves Neufeld has done to separate Aphria from the pack.

Reinvesting in the company

In December 2016, the largest player in the marijuana industry Canopy Growth Corp. (TSX:WEED) acquired the second-largest producer at that time, Mettrum Health Corp, for $430 million. Mettrum’s shares were trading at $5.92, and Canopy essentially paid $8.42 per share. Not only were Mettrum’s shares overvalued, but Canopy paid an additional 42% premium on top of that!

In my opinion, this clearly a poor management decision. Yes, Canopy did acquire the second-largest producer, but it grossly overpaid. This goes against one of Warren Buffett’s biggest rules in capital allocation: to never overpay for shares in a company.

Instead of trying to grow by acquisition, Neufeld has made it clear that he plans to grow Aphria organically and reinvest the cash flows into the company for now. Neufeld is aware that Aphria would have to pay a significant premium for another Canadian producer; therefore, Aphria has been making conservative investments into producers in the United States instead.

No brand ambassadors

Both Canopy and Organigram Holdings Ltd. have each teamed up with Snoop Dogg and Trailer Park Boys, respectively, to enhance each company’s brand. One may think this would be a great move; however, both companies may not even have the opportunity to benefit from these branding partners.

The government has made it clear there will be restrictions on advertising of cannabis. Producers may be required to use plain packaging, which could result in both of these partnerships becoming essentially useless.

How has Aphria approached branding?

Neufeld has stressed from the beginning that Aphria is one of the lowest-cost producers. This strategy should resonate with consumers since they will probably stop buying from the illicit market if they can buy cannabis from a legal producer at a lower price.

Foolish bottom line

Obviously, there is still much uncertainty regarding the recreational market, but I firmly believe investors have the highest chances of success by acquiring shares in Aphria. The only thing certain is who makes the decisions within these companies, and I have the utmost confidence that Neufeld will continue to make the right moves for Aphria.

Fool on!

The post Why Aphria Inc. Is the Only Pot Stock I’ll Buy appeared first on The Motley Fool Canada.

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A common mistake Canadian investors make is being heavily invested in Canadian equities. As of February 2017, Canada was the 22nd-largest economy in the world, and its performance is closely linked to the performance of financials, energy, and materials. Therefore, investors are limiting their portfolio’s growth by only investing in equities from a country with such a narrow focus.

Many pension funds have as little as 7% Canadian equities in their portfolios; therefore, if some of the best fund managers in the world are limiting their exposure to Canada, it’s probably in Foolish investors’ best interests to do so as well.

Obviously, it’s important to invest in what you know, which is why most Canadians invest primarily in Canadian equities. However, Canadians can still obtain international exposure from stocks traded on the TSX. Descartes Systems Group Inc. (TSX:DSG)(NASDAQ:DSGX) is a growing tech company with significant international exposure. Should investors be diversifying their portfolios with this stock?

Here’s a quick look at the company.

Company overview

Descartes is in the business of supply chain management. Suppliers are continually being asked to deliver supplies quicker at lower prices and with greater flexibility. Descartes helps companies implement automated functions which allow companies to simplify complex business processes. Therefore, Descartes’s technology allows its customers to increase their earning potential.

One of the most attractive features of Descartes is its global reach. Currently, over 93% of its revenue is generated outside Canada with 52% derived from the United States and 37% from Europe, the Middle East, and Africa. With only 7% of its revenue coming from Canada, the company’s exposure to the Canadian market is in line with many pension managers’ level of exposure.

In addition, the company’s innovative logistic solutions have been able to generate significant cash flows at an annual average rate of 24.5% over the past six years. Therefore, the combination of a weak Canadian dollar and strong inflows from foreign countries could result in larger returns for shareholders

Current valuation

Like most tech companies, investors will have to pay a premium for growth. The company is currently trading at a price-to-earnings ratio of 77, which is above its five-year average of 63. In addition, it’s trading at a price-to-book value of 4.2, which is significantly above the sector median of 2.3. Therefore, investors may want to refrain from overpaying for this stock at these levels.

Foolish bottom line

At the end of the day, investors need to be searching for opportunities outside Canada to diversify and grow their portfolios. Descartes has the potential to achieve this for investors; however, I believe they should refrain from buying it at these levels. This company is definitely on my shopping list, but I’ll be patiently waiting for the valuation to become more reasonable before buying its shares.

Stay Foolish, my friends,

The post Should Investors Obtain International Exposure With This Stock? appeared first on The Motley Fool Canada.

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Stock picking is hard. You can analyze a stock to death, learn the company inside out, and sometimes still see sub-par returns. There are no guarantees in the investing world, but by buying and holding great companies over many years, your chances of success are much higher. How does one identify these great companies?

Here are three simple things I look for before I buy a stock.

An industry of need

It’s critical that you buy shares in companies that provide a “need” instead of a “want.” A company that provides a need increases a company’s chances of being around for years to come. Sectors such as utilities, real estate, and banks are a few that come to mind. Steady returns over the long term will not be earned by investing in what’s hot today. Boring industries that are proven money makers with recurring cash flows are better long-term bets.

History of earnings growth

Investors should be investing in companies with track records of generating strong earnings. One simple metric I continually look to is earnings per share. I generally look for companies with five-plus years of growth in its earnings per share. There is no guarantee the company can repeat its earning performance in future years, but investors have a greater chance of success buying shares in a company with a proven track record.

Trading at a discount

Buying great companies at a discount creates asymmetric risk, meaning the reward is greater than the risk involved. If investors can find a great company that the market has undervalued, there is a better chance it will eventually return to its actual value with further potential growth.

Two simple metrics I use are the price-to-earnings ratio and the price-to-book ratio. I compare the company’s five-year average to the company’s current ratios. If the company’s current ratios are below its historical average, there is a good chance investors will avoid overpaying for a stock.

A company with all three?

Exco Technologies Limited (TSX:XTC) is an auto parts manufacturer that meets all three of the criteria above. Society is deeply entrenched with automobiles, and vehicles will continually need servicing and new parts; therefore, the company is providing a service that should be around for many years.

The company has exceptional earnings growth as its earnings per share have increased by an annual average of 30.8%. In addition, the company is currently trading at price-to-earnings and price-to-book ratios of 10.4 and 1.8, respectively, both of which are below the company’s five-year averages of 13.1 and 2.0. Therefore, investors have reason to believe that Exco is an undervalued company with growth potential.

Foolish bottom line

Obviously, these aren’t the only factors investors should consider before acquiring shares in a company. However, by continually seeking undervalued companies with strong earnings in industries of need, you’ll be setting yourself up for exceptional returns over the long term.

Fool on!

The post 3 Things I Look for Before I Buy a Stock appeared first on The Motley Fool Canada.

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Real estate is a time-tested method of building wealth. However, everyone doesn’t have the skill set nor upfront capital to acquire multiple properties and build a diverse real estate portfolio. Fortunately, every investor can obtain exposure to this industry with real estate investment trusts, better known as REITs. By acquiring shares in REITs, investors can sit and watch the returns compound, while real estate professionals manage the properties.

The largest player of the real estate industry in Canada is RioCan Real Estate Investment Trust (TSX:REI.UN). Should investors be hitching their wagons to the biggest player of a proven method for building wealth?

Here’s a quick look at the company.

Company overview

The company owns and operates over 300 shopping centres throughout North America and has large retailers such as Wal-Mart, Loblaw, and Canadian Tire occupying those centres; no tenant accounts for more than 4.8% of its revenue. Therefore, RioCan’s numerous quality tenants across North America offer an unusual amount of diversification within one stock.

Not only has RioCan established its position as the largest REIT in Canada, but the company has been able to demonstrate its ability to overcome financial struggles. The company has only increased its dividend since the 2008 Financial Crisis and has done a great job re-leasing its properties when Target Corp. left Canada. Therefore, investors can take comfort in knowing the company can weather potential issues that may arise.

The dividend

One of the most attractive features of investing in RioCan is its dividend yield. The company has maintained a dividend payout of $1.41 per share since 2013, which translates into a yield of 5.4%. With an occupancy rate of 95.6%, investors can expect RioCan to continue to generate sufficient cash flow in order to maintain its dividend.

The valuation

Based on current levels, investors will have to slightly overpay to acquire RioCan. The company is trading at a price-to-earnings ratio of 12.7 and a price-to-cash flow ratio of 18.6. Both are above the company’s five-year average of 11.7 and 16.7, respectively. Therefore, investors may want to wait for a cheaper valuation before acquiring shares in the company.

The risks

The greatest threat RioCan faces is the decline of retail shopping. The rise of e-commerce is a serious threat to brick-and-mortar retailers, which could impact RioCan’s earnings and occupancy rates. However, I believe the company’s tenants won’t be leaving its buildings anytime soon. The impact of e-commerce will hurt its tenants well before it impacts RioCan’s earnings, and its tenants will continue to pay rent for the foreseeable future.

Foolish bottom line

I believe RioCan is a great company, but there are far better opportunities elsewhere among REITs in Canada. Investors should be looking to real estate sectors such as residential and industrial, as I believe the long-term prospects of both sectors are much better than retail.

Fool on!

The post Does Canada’s Largest REIT Belong in Your Portfolio? appeared first on The Motley Fool Canada.

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