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To say that 2020 has been a volatile year for stocks would be an understatement. There are stocks that have ‘zoom’ed up, a few that have crashed and some that are in recovery mode. COVID vaccines are getting rolled out, BP has said that oil demand may never recover to pre-pandemic levels and the green shoots of recovery are starting to sprout.
When investors look at 2021, they need to look at stocks that combine the dual advantages of capital appreciation and stability. Here are three stocks that we recommend:
3 TSX Stocks to Buy for 2021
Energy King: Enbridge
Enbridge is a stock that ticks all three boxes required by investors to invest in a stock. It has great growth potential, it pays a very good dividend and it has one of the best track records when it comes to revenues.
Enbridge is an $87.16 billion (market cap) energy infrastructure company. It is a midstream company, moving about 25% of the crude oil produced in North America, transporting nearly 20% of the natural gas consumed in the U.S., and operating North America’s third-largest natural gas utility by consumer count.
The company generates stable cash flows thanks to long-term contracts and regulated operations. Around 98% of Enbridge’s revenues are regulated and the company has said that it is aiming for a range of $4.5 – $4.8 per share for distributable cash flow (DCF). It is on track to hit $4.6 by the end of the year and expects to grow its DCF by 5-7% until 2022.
Enbridge also sports an attractive 7.7% dividend yield. The company has grown its dividend yield at a CAGR (compounded annual growth rate) of over 11% from 1995-2020. Shareholder return from 1995-2019 has been 15.8% compared to 10.6% on the S&P 500 and 8.9% on the TSX. Enbridge is one of the few companies on the TSX that didn’t cut or suspend its dividend payouts in 2020.
The company already has new oil and gas pipelines, and gas utility expansions lined up. While the company is heavily reliant on fossil fuels, it has also invested $8 billion into renewable energy since 2002. It has an extensive project backlog lined up including offshore wind farms in Europe.
Enbridge shares are trading at $42.98 right now, and analysts have given it a target of $50.55, an upside of over 17%. When you include the dividend yield, you can generate a return of around 25% in a year.
Logistics Never Goes Out of Style
Descartes Systems is a logistic and supply chain management system provider. Offline or online, people still need to consume goods and that means companies need to put into place proper logistics and supply chain solutions. Descartes stock started 2020 at $59.33 and is now trading at $70 thanks to the boom in e-commerce volumes.
The company has invested in e-commerce with distribution set-ups like ShipRush, Velocity Mail and Scancode and e-commerce enablement and warehousing like pixi and Peoplevox. On November 6, it announced that it has acquired ShipTrack, a provider of e-commerce final-mile solutions.
Descartes recently announced its results for the third quarter of 2020 and it beat all analyst expectations. It had record revenues of $87.5 million and record adjusted EBITDA of $36.4 million, up 16% over the same period last year. Adjusted EBITDA margin came in at 42% and cash from operations came in at 91% of adjusted EBITDA.
The next year will see a rollout of vaccines across the world including Canada. The country is relying on suppliers from the U.S. and Europe for its vaccines. That will involve even more logistics and Descartes is perfectly placed for this.
CEO Edward J Ryan said during the analyst call, “In short, right now, logistics and supply chain markets have tremendous opportunity and uncertainty. We believe our well calibrated business with a history of superior execution and ample capital is in a great position to succeed.”
The New Year will also see a new customs regime in Europe with the UK leaving the EU. Descartes said, “If you’re in the logistics and supply chain industries, it’s like a brand-new country has been established for the purposes of import and export filings with a bunch of uncertainty about how it will all work, whether even more changes are forthcoming and new systems to deal with.” The company has been gearing up for this.
The stock is trading at $72.92 right now and analysts have upgraded their price targets to $100.94, an upside of almost 40%. This is a great stock to buy for 2021.
Too Big to Fail
Air Canada is the national carrier for Canada that is under the pump, losing close to 50% in market value in 2020. However, there is absolutely no way that the government will let this airline go down.
The airline sector has been hit very hard in the pandemic. The lockdown restrictions ensured that no one could take to the skies. As people stayed home, Air Canada stock took a pounding. The stock fell to $12 in March and had recovered to only $16 in November. However, since then the stock has zoomed over 74% to $27.61 as the airline resumed limited operations and as the vaccine news cheered investors.
Prime Minister Justin Trudeau has said that most Canadians will receive their vaccinations by September 2021. This is great news for Air Canada as the country will receive its first 249,000 doses in December 2020 and spring will see the vaccine rollout in full swing.
Air Canada’s 52 week high is $52.71. If all goes according to plan and the pandemic is brought under control, there is little reason why Air Canada can’t reclaim its record high in 2021.
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