Pape’s Cornerstone Quintet

Five stocks to weather the pandemic

The continuing strong rally in stocks is mystifying. If it holds, this is going be the shortest bear market in history. I don’t think that’s likely. Historically, markets look ahead three to six months, and that’s reflected in the prices. But what is the world going to look like by the fall? Based on what medical experts are telling us, we will still not have a coronavirus vaccine, although we may be getting close.

Without a vaccine, a major economic recovery is highly unlikely. That means the scenario for the next year or so is likely to be similar to the one we’re experiencing now. Unemployment will be high, corporate profits will be suppressed, global supply chains will be strained, demand for oil will remain low, money for new capital expenditures will be scarce, and many people will need government help to survive.

That’s not a recipe for a bull market. I think once investors realize how long and difficult the road back is going to be, we’ll see a new downturn that will test the March lows. I don’t expect a true recovery to begin much before the latter part of the fourth quarter or the first quarter of 2021.

I’m not suggesting you should avoid stocks during this period. But they must be carefully chosen. I would not invest in broad market indexes at this point.

Rather, look for stocks that are likely to at least hold their value during this crisis and will emerge in a stronger position when it’s over. I call these Cornerstone Stocks. They offer products or services that are in high demand (many are essential services), have a sound balance sheet, and pay a sustainable dividend.

Here are five Cornerstone Stocks I believe are worth considering at this time.

Precious metals

Franco-Nevada Corp. (TSX: FNV). Gold has always been a safe haven investment, and it looks even more attractive now as the U.S. Federal Reserve Board has become a money-printing machine, weakening the U.S. dollar. I like this stock because it’s a royalty company – it doesn’t have to carry the cost of finding, developing, and operating new mines. The shares are up 43% so far this year.

Retailers

Walmart Inc. (NYSE: WMT). Many companies are suffering during this downturn, laying off millions of workers in the process. Walmart is not one of them. Sales are booming – The Wall Street Journal reported recently that they were up 20% year-over-year in March. As a result, the company is hiring, big time. The retailer has added 150,000 new jobs and plans to hire another 50,000, although these positions will be mainly temporary. The stock pays a quarterly dividend of US$0.54 (US$2.16 a year), to yield 1.7%.

Costco Wholesale Corp. (NSD: COST). Costco is another retailer that’s doing well. March sales were up 11.7% year-over-year, although the numbers going forward may not be as impressive due to new social distancing rules at its stores. The company showed confidence by raising its quarterly dividend by 7.7%, to US$0.70, effective with the May 15 payment.

Telecoms

AT&T Inc. (NYSE: T). Communications companies may suffer some revenue declines this year, but these are solid businesses with steady cash flow. AT&T’s CEO has stated the company has a strong balance sheet and is committed to fulfilling its dividend obligations. Despite that, the shares are trading around US$30. With a $2.08 annual payout, that works out to a yield of better about 7%.

BCE Inc. (TSX: BCE). BCE has withdrawn financial guidance for 2020 because of the uncertainty surrounding the impact of COVID-29. Net earnings declined to $733 million for the first quarter, down 7.3% from the fourth quarter of 2019, while adjusted earnings per share rose to $0.80, up 3.9%. BCE declared a second-quarter dividend of $08.325, up 5% from last year, for a forward dividend yield is 5.9%. The company said its healthy balance sheet should sustain the common share dividend payments for the foreseeable future. This is a core stock to hold through the crisis and beyond.

A word of caution. While these securities should outperform the market in the coming months, prices look expensive at this point, as I noted at the start of this column. If you plan to make any purchases, use dollar-cost averaging. Buy 25% now and increase your position gradually until you reach your target.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.