Equity markets have a reputation for delivering superior returns over a long-term horizon of a decade or longer, but all investors are keenly aware that they often face stormy seas over the short term, buffeted by economic and geopolitical events beyond their control.
Today's roiling markets present such a challenge for investors. So The Globe and Mail asked two experts to recommend a few stocks that they believe can hold their own and tide investors through volatile and uncertain times. Here are the equities they chose, in alphabetical order, along with some of their reasons for choosing them.
Stephen Carlin, managing director and head of equities with CIBC Asset Management in Toronto
"In these tumultuous markets we're in, there are a couple of key things that we would focus on," says Mr. Carlin.
"Number one, you have to focus on companies that are in a strong financial condition, so what we're doing in terms of looking at names in this kind of environment … is ensuring that we have companies with strong balance sheets. The other thing that we also love to look for when investing in the marketplace is companies that can pay you a dividend along the way."
Brookfield Asset Management Inc., Toronto (BAM.A, TSX; BAM, NYSE): Brookfield is a diversified global business that offers an attractive 1.68-per-cent annual dividend yield (at publication time). Furthermore, there are numerous distress situations in today's market where companies are being forced to sell assets and this may be beneficial for Brookfield, which is likely to be a buyer of assets, says Mr. Carlin. "With their discipline, we think that Brookfield is very well positioned to continue to grow its business looking forward. It meets our attributes of an attractive balance sheet, good stable dividend, and growth opportunities," he adds.
Canadian National Railway Co., Montreal (CNR, TSX; CNI, NYSE): CN Rail is a high-quality company that is well managed and poised to deliver attractive growth opportunities over the next couple of years, says Mr. Carlin. CN Rail also presents an opportunity for buyers to purchase a high-grade stock that will add quality to their portfolio, especially now that its stock is trading closer to its long-term historical average, after its valuation had risen considerably above that mark just a couple of years ago, he notes.
Manulife Financial Corp., Toronto (MFC, TSX and NYSE): "We are finding the life insurance sector particularly attractive now. It has slightly better growth opportunities from an earnings perspective than some of the other categories within financial services," says Mr. Carlin. "Manulife today trades below its book value and offers an attractive 4.2-per-cent dividend yield. In fact, the company surprised us by increasing its dividend last quarter." Mr. Carlin also says that while a small portion of Manulife's investment portfolio is exposed to the oil-and-gas sector, necessitating a valuation write-down because of low commodity prices, the company's operations are otherwise performing well.
Sun Life Financial Inc., Toronto (SLF, TSX and NYSE): "Sun Life has been performing quite well operationally over the last few years," Mr. Carlin says. "We expect the business to show better earnings growth in 2016 than many of its peers. The attractive earnings growth profile coupled with its steady dividend yield of 3.8 per cent is a good combination of yield and growth that we like," he elaborates.
TransCanada Corp., Calgary (TRP, TSX and NYSE): TransCanada has a strong balance sheet, provides a stable dividend and it offers an opportunity for growth going forward, says Mr. Carlin. "Because of the stability in its business, and the fact that it has very little direct exposure to commodity prices like oil, for example, the company has a sustainable dividend, something we are not seeing with the oil-and-gas producers," he notes. "We look at the valuation for the stock – trading at just below 20 times earnings – and find it to be a particularly attractive opportunity right now," Mr. Carlin says.
Frank Nicolais, senior vice-president and portfolio manager with National Bank Financial Wealth Management in Toronto
In volatile times, Mr. Nicolais looks to equities of businesses that cater to non-discretionary, necessity purchases that people require on a daily basis, such as food, medical prescriptions, and utilities.
It is also important that e-commerce is not a significant threat to their business, he explains.
"In addition we'd like to see stable earnings with businesses that have a consistent history of paying out dividends at a sustainable level. It is very important to deal with businesses that have sticky customers – in most cases, hundreds of thousands or millions of customers. But most importantly, we also want to make sure … debt levels are manageable and sustainable," Mr. Nicolais says.
Here are four examples of equities that fit his preferences.
BCE Inc., Montreal (BCE, TSX and NYSE): BCE has a stable, annual dividend yield that is currently at 4.7 per cent. It also attracts dedicated customers with substantive-length contracts, and has a growing customer base, as people continue to add other wireless services to their contracts, Mr. Nicolais says. Furthermore, from an industry standpoint, there is very little competition in the Canadian telecommunications sector as potential competitors face high barriers to entry, he adds.
Crombie Real Estate Investment Trust, New Glasgow, N.S. (CRR-UN, TSX): Mr. Nicolais is bullish on Crombie REIT because it offers a 6.8-per-cent dividend yield, has a very manageable debt load, and its tenants are predominantly retailers of everyday necessities. Its real estate is anchored by Sobey's grocery stores. "[It has] a significant shareholder in the Sobey's family – they own 41.3 per cent of the REIT. So you have a management team supported by a significant shareholder with a long-term vision and a history of solid performance," Mr. Nicolais says.
General Mills Inc., Minneapolis (GIS, NYSE): General Mills has a strong balance sheet and very diverse income stream from selling thousands of everyday products to millions of customers around the world. The company also has a steady and growing dividend yield of more than 3 per cent annually, Mr. Nicolais says.
Hydro One Ltd., Toronto (H, TSX): Hydro One has "millions of customers and a very sticky customer base. It is hard to get your electricity elsewhere, so it has a regulated and guaranteed income stream," says Mr. Nicolais. Furthermore, because Hydro One continues to move to a private model, it offers investors meaningful operational improvements and growth opportunities, he adds.
Selected by both Mr. Carlin and Mr. Nicolais
Telus Corp., Vancouver (T, TSX; TU, NYSE): "We believe that if you're looking at some good, long-term stable businesses that you might be able to work through these choppy markets, Telus would certainly fit the bill. A 4.4-per-cent dividend yield is really nice to have in your back pocket against the backdrop of a market that's been quite choppy," says Mr. Carlin. Telus, with operations primarily in British Columbia and Alberta, faces less competition than carriers in the East. With a focus on cellular, Internet and Internet Protocol television, their business is less vulnerable to attrition from reductions in land-line revenue, Mr. Nicolais says. Along with Telus's dividend yield, a strong balance sheet and growing subscriber base across varied communication media also make Telus a compelling long-term investment, he adds.