In a bear market, top stock picks are highly perishable.
The immense convulsions in financial markets over the last two months have forced stock analysts to rethink their recommendations on every company they cover.
Going into 2020, RBC Dominion Securities published a list of its 30 best investment ideas for the year ahead, using forecasts and economic assumptions the COVID-19 pandemic has since rendered obsolete.
“We have decided to transition to an evolving quarterly list, in part because of growing volatility in the market,” RBC’s analysts wrote this month.
The revised list features 15 new names from around the world, including pharmaceutical companies at the forefront of the search for COVID-19 treatments and vaccines, retailers poised to capitalize on the eventual recovery in consumer spending, as well as two Canadian additions.
The first is Brookfield Asset Management Inc., which is down by 25 per cent from its February peak, and that’s after rebounding by 55 per cent over roughly the last two weeks.
With global scale, a strong track record of returns, and a spectrum of funds and strategies, which includes US$290-billion in capital that generates long-term fees, Brookfield’s stock is a “core holding,” RBC’s analysts said.
“There are few if any companies that are truly comparable.”
The second Canadian stock RBC added to its list is Thomson Reuters Corp., which has proven to have a resilient business in the face of prior economic downturns, the report said. (Thomson Reuters is majority-owned by Woodbridge Co. Ltd., the investment company of Canada's Thomson family. Woodbridge also owns The Globe and Mail.)
“We believe Thomson Reuters, at current levels, is now positioned to deliver capital protection in the event of a prolonged 2008-2009 style recession and recovery, yet also positioned to deliver capital appreciation should this recession be deep but relatively short-lived, with a ‘V-like’ recovery beginning in the second half of 2020,” RBC said.
Four other Canadian companies remain on RBC’s top global investment ideas.
While Alimentation Couche-Tard Inc. is exposed to the disruptions to daily shopping patterns and lower fuel demand, the convenience store chain has “multiple routes to future growth,” the report said. With a strong balance sheet and cash flow, the company can afford to be opportunistic acquirers at attractive valuations.
Meanwhile, gold prices have been on a tear over the last few weeks, and Barrick Gold Corp. is well positioned to capitalize, with a stable production and cost profile for the next five years, according to the report.
Oil prices, of course, have moved violently in the opposite direction from gold. But Canadian Natural Resources Ltd. says it has a sound financial position and has no plans to reduce or suspend its dividend. “One of the reasons we like CNQ so much is that the company has navigated difficult oil market conditions in the past and come out stronger on the other side,” the report said.
Lastly, RBC analysts say Canadian Pacific Railway Ltd.'s best-in-class management team and its reputation for service lend the company strength in pricing. “We believe that top operators outperform in periods of volatility and our view is that this is especially important now due to trade concerns and macro uncertainty.”
There were three Canadian stock deletions from the refreshed Top 30 list: Constellation Software, TC Energy, and Waste Connections.
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Tim Shufelt