Trading stocks is tempting but not always the best way to build a retirement nest egg. Timing the market is not easy, and you could miss a stock's best gains.
Investors are often better off taking a Rip Van Winkle approach – owning quality stocks and sleeping through their inevitable ups and downs.
We asked three portfolio managers to pick stocks suitable for a registered retirement savings plan, and which investors could hold for at least five to 10 years, or even longer.
- Larry Sarbit, chief executive and chief investment officer at Sarbit Advisory Services, Winnipeg
- The pick: Lions Gate Entertainment Corp.
- Recent 52-week range: $16.21 (U.S.) to $29.03 a share
Shares of the U.S.-based film studio have become more attractive since it acquired the cable television network Starz, said Mr. Sarbit. Lions Gate has had hit movies, such as La La Land, which has 14 Oscar nominations, as well as successful television shows, but winners are unpredictable, he said.
Starz will provide a more predictable revenue stream, and growth will come from international expansion, he said. Starz, which is headed by Chris Albrecht, who formerly ran rival HBO, is also a plus to Lions Gate management, he added.
Mr. Sarbit bought Lions Gate stock when it got hammered early last year after its final Hunger Games movie fell short of expectations. He was not surprised by the merger because media investor John Malone owned stakes in both companies.
With the growing popularity of streaming movies, Lion's Gate's massive film library will generate cash too, he added. Lions Gate, whose stock trades at about 10 times free cash flow, is a business that is going to be a lot bigger in five to 10 years, he said.
- The pick: Sirius XM Holdings Inc.
- Recent 52-week range: $3.29 (U.S.) to $4.80 a share
The U.S.-based satellite radio company is on a growth trajectory as subscribers continue to climb, said Mr. Sarbit, who has owned Sirius stock since 2013. U.S. subscribers rose to 31.3-million in 2016 from 25.5-million in 2013.
The number of vehicles with built-in Sirius radio surged to about 88 million at the end of 2016 compared with 60 million three years ago, he added. Within the next decade, Sirius estimates there could be 185 million cars equipped with its product, so there is a huge potential for more subscribers, he said. "They are also going after the used-car market big time."
Sirius is about 60 per cent owned by Liberty Media Corp., which is controlled by its chairman John Malone. Speculation about Sirius buying Internet radio provider Pandora Media Inc. will happen only if the price is right, Mr. Sarbit said. "John Malone doesn't overpay."
Sirius stock, which trades at about 14 times cash flow, could also be taken private eventually by Liberty, whose stake has been creeping up, Mr. Sarbit added.
- Robert Gill, vice-president and portfolio manager with Lincluden Investment Management, Toronto
- The pick: North West Company Inc.
- Recent 52-week range: $24.08 to $33 a share
This retailer of food and everyday goods is a compelling investment because North West operates mainly in remote communities where there is little competition, said Mr. Gill, who has held the stock for three years.
In Canada's North, "North West is the only game in town," he said. "The stores feel like a Wal-Mart except it is labelled NorthMart or Northern."
The Winnipeg-based firm, which also operates Giant Tiger discount stores in Western Canada, owns retailers in the Caribbean and South Pacific as well. Having a virtual monopoly in communities has resulted in a high return on equity of 21 per cent, and without too much debt, he added.
North West's annual dividend of $1.24 a share yields more than 4 per cent, and that payout is expected to increase, he said. North West stock trades at 17 times forward earnings, which is not expensive compared with about 23 times for the Toronto stock market, he noted. Risk of competition is low due to the difficulty in transporting goods to far-flung regions, he said.
- The pick: Toronto-Dominion Bank
- Recent 52-week range: $48.52 to $68.60 a share
Shares of Canada's second-largest bank are appealing because TD operates in an oligopolistic industry which means limited competition, says Mr. Gill. "They don't fight. They pillow fight."
TD has a dominant franchise in personal and commercial banking with the Canadian retail business contributing 64 per cent of total profit, he added. Its U.S. expansion strategy has gained traction over the years, and TD also has a 42-per-cent stake in TD Ameritrade, the largest U.S. discount broker. TD's U.S. arm will benefit from rising interest rates, expected this year, and a stronger U.S. economy, he said.
Risks include any sudden downturn in the Canadian housing market, and competition from financial technology companies such as robo-advisers, he said.
TD shares traded at more than 13 times forward earnings recently, but that valuation is still reasonable given TD's strong brand, solid balance sheet and dividend yield of more than 3 per cent, he said. TD shares have been in Lincluden's portfolios for more than 15 years.
- Lorne Steinberg, president of Lorne Steinberg Wealth Management, Montreal
- The pick: Microsoft Corp.
- Recent 52-week range: $48.04 to $65.91 a share
The U.S. software giant has morphed from a personal computer-centric business to one more focused on providing cloud services, said Mr. Steinberg, who has owned Microsoft stock for about five years.
"They are a huge cloud player … that is driving their growth." But Microsoft's software, which includes Office 365, is still "the only game in town for most companies," he added.
The company, which has $60-billion in cash, has seen its shares outstanding fall to 7.8-billion from 10.8-billion about a dozen years ago, he said. "They keep on creating shareholder value. … We are looking for this company to generate 10-per-cent earnings growth for the next several years, with a declining share count and huge free cash flow, and that's not including future acquisitions."
There is always risk in the technology business from competing software products, or simply "missing the next thing," he said. Microsoft shares, which trade at about 21 times earnings, could reach $95 a share in five years, he suggested.
- The pick: Goldman Sachs Group Inc.
- 52-week range: $138.20 to $247.77 a share
The U.S.-based global investment bank has emerged from the financial crisis stronger than some peers and has created shareholder value, said Mr. Steinberg. Some firms diluted their outstanding shares massively to survive, but Goldman's shares have fallen to 421 million from 437 million in 2008, he noted. Goldman also faces less competition after rivals pulled out of certain businesses such as bond trading, he said.
Mr. Steinberg bought Goldman shares last June after financial stocks took a hit when Britain voted to exit the European Union. There are assorted risks in the financial services industry, but hopefully Goldman has diversified well enough to be able to handle any problems, he said.
Goldman shares have rallied since Donald Trump was elected U.S. president last November. He promised less regulation for banks so they will be given more opportunity to make money, Mr. Steinberg said. Goldman shares, which trade at about 14 times forward earnings, could be worth $350 a share in five years, he said.