Stock Talk - a newsletter on investing.

A recap of the week.

When should you sell your stocks?

We often talk about buying stocks, but what is the criteria for selling?

Lyle Stein of Forvest Global Wealth Management joined us on television this week and had a helpful answer.

“One of the first things you should do when you buy a stock is write down three reasons why you’re buying the stock in the first place,” Stein noted.

“Write it all down on a piece of paper, put a price target on the stock, and stick it in a folder.”

Stein went on to say that when the stock hits that price, you can review the three reasons you outlined for owning the stock in the first place.

If that thesis still holds true, you might stick around.

If you want to look around for something that better reflects your reasons for ownership, you can always shop around to see if there’s a better match.

After all, there are plenty of fish in the sea of equities.

Warren Buffett has often talked about this.

How do your stock picks compare to Warren Buffett?

As you know, Berkshire Hathaway owns big portfolio of private businesses, such as Duracell, Dairy Queen, Geico and railroad giant BNSF. But, of course, Warren Buffett and his lieutenants love investing in stocks too.  His biggest bets have become so big it will be hard to dethrone them from the top holdings list.

They are:

Apple

Bank of America

American Express

Coca-Cola

Chevon

Occidental Petroleum

Kraft Heinz

Moody’s

The truth about dividends

One of the reasons Buffett loves Apple is the steady dividends.

And it’s always helpful to measure investment performance by comparing stock returns with total returns. Stock returns are based on pure stock appreciation, whereas total returns measure capital appreciation and the income received through things like dividends. The main conclusion is that dividends can make a big difference over the long term.

Take the past decade.

Apple’s stock rose by 800%, while the total return was 922%.  In the case of Microsoft, it was a 969% advance, compared to a 1,162% total return.  And, with market darling Broadcom — a rare high growth name with a dividend tilt — the total return is 2,636%, compared to the stock’s 2,010% advance.

In Canada, three of the biggest stocks by market cap are Royal Bank, Canadian Natural Resources and CN Rail.  Their respective returns over the past decade are 90%, 144% and 191%.  But if you factor in dividends and measure the total return, those overall percentages climb to 182%, 272% and 247% respectively.

The biggest total returns in Canada over the past decade belong to names such as Constellation Software, which has advanced by 1,555%.  If you were measuring performance based on stock appreciation alone, the gain stands at 1,422%.  Another notable name? WSP Global, which has enjoyed a 709% total return in the past 10 years.  That compares to a 542% gain for the stock, outside of dividends.

Dividend stocks at bargain prices

Longtime strategist Brian Belski stopped by for a chat this week. He’s a fan of stocks that fall into the camp of “growth at a reasonable price” — also known as GARP.  He’s also a fan of stocks that offer “YARP” – yield at a reasonable price, which in the most simplest language is trying to identify dividend stocks at bargain prices.  In particularly, they offer above average dividend yields and below average valuations.

We decided to screen for stocks that carry these characteristics.  In the Canadian market, we looked for names that sport at least a $5 billion valuation, with yields that were at least double the TSX average.  That netted out: BCE, Whitecap Resources, TC Energy, IGM Financial, Capital Power, Scotiabank and RioCan.

Some U.S. listed stocks that stand out include American Electric Power, Altria, AT&T, CVS Health, 3M, Kimberly-Clark, Medtronic, Edison International, Kenvue, General Mills, Gilead Sciences, Kraft Heinz, LyondellBasell, State Street, Kinder Morgan, Diamondback Energy and Verizon.

Standout dividend funds?

I received a viewer inquiry about some of the top Canadian dividend ETFs.

In particularly, investments that adjust for this higher inflationary environment.

Instead of tracking individual fund performance against the rate of inflation, my short term solution was to track funds that enjoyed total returns of 10% or more in the past 12 months. 

At least with gains of 10% or more, you can be fairly confident you’re beating inflation.

Names on that list included:

Bristol Gate Concentrated Fund

iShares Canadian Value ETF

RBC Quant Canadian Dividend Fund

Dynamic Active Canadian Dividend Fund

Vanguard FTSE Canadian High Dividend ETF

Purpose Core Equity Income Fund

iShares Canadian Dividend Aristocrats ETF

BMO Canadian Dividend ETF

BMO Canadian High Dividend Covered Call Fund

Invesco Canadian Dividend ETF

Now, if you care about fees – and most investors do — only three of those funds appear to sport management expense ratios that are less than half a percent. Those are: the Vanguard FTSE Canadian High Dividend ETF, the BMO Canadian Dividend Fund and the RBC Quant Dividend Fund.

Stocks with standout sales growth.

I received a viewer question about steady compounders.  The compound annual growth rate – also known as the “CAGR” – helps assess how much a stock has returned to investors. 

But compound annual growth rates can be used to analyze the steady returns of a business overtime in a number of ways.  

For example, you can look at CAGR through the lense of sales.  Bloomberg tracks those numbers over a 5 year period. Looking at companies in Canada that are worth at least $5 billion and have generated at least 25 percent compound annual growth in sales over the past 5 years, you’re left with a list that includes Shopify, AltaGas, Brookfield Infrastructure, ARC Resources, Capital Power and Tourmaline Oil.

In the U.S., stocks meeting that criteria include: Amazon, Apollo Global, AMD, Arista Networks, Dexcom, Fortinet, Fiserve, Crowdstrike, Cigna, Palo Alto Networks, Salesforce, ServiceNow, Prologis, Workday, Telsa, Nvidia, Uber, and Vertex Pharmaceuticals.

Big call: bet on power players as power demand surges 

The AI craze is fueling power demand.  And that is an opportunity for investors, according to Ryan Bushell of Newhaven Asset Management.  His specialty area is energy infrastructure and he noted in our television interview this week that the new chip plants being built in the U.S. consume more power than oil refineries and auto plants, due to the strict environmental and climate controls needed.  They also consume a tremendous amount of water that needs to be purified to a very high level.  

Overall, Bushell sees power demand growth coming from many different areas — EV’s, population growth/migration, climate change/cooling demand, cloud computing and other manufacturing re-shoring.

Stocks he likes to lean into this trend?

Fortis 

TC Energy

Brookfield Renewable

Answering your TikTok questions…

Some have you have learned about this newsletter through TikTok.  Thanks for subscribing!  

I get lots of questions about stocks and do my best to answer them.

I received an inquiry about Lion Electric, the Quebec-based maker of electric school buses.  The company has faced some headwinds, which its CEO recently addressed.  Certain orders from buyers are dependent on subsidies and delays in government grants have been a headache.  And the company announced layoffs.

So what do analysts think?  For the most part, they are taking a wait-and-see approach, as more than 50% of the investment firms covering the company currently have a hold rating on the shares.  Cannacord Genuity would like to see more moves to shore up the balance sheet.

All that said, the average target price among the 13 analysts who officially cover the stock would suggest the shares could be higher in a year’s time.

I also received a question about Intuitive Machines, which recently made history when its robotic lander became the first vehicle produced by a commercial company to make it to the surface of the moon in one piece.

The stock initially spiked on that news, before an equally dramatic pullback.  Intuitive has since reported better than expected quarterly sales and the CEO said it has enough cash to get through the year.

Analysts have been bullish, but keep in mind Intuitive is an early stage business and, as such, has fairly limited analyst coverage — just four firms cover the company.  All have favorable ratings.

What will they think of next?

Some pretty incredible video made its way around the Internet this week, offering up yet another look at how technology is having a dramatic influence in our lives.  Elon Musk’s Neuralink provided a live stream update with its first brain implant patient.  If you’re not familiar with this story, Neuralink — which Musk co-founded in 2016 with a number of scientists and $100 million of his own money – is a brain technology startup.  Its implant allows a patient to use their thoughts to control a computer.  This, of course, has been hard for many people to imagine – until now.  In the video, the patient, who injured his spinal cord in an accident 8 years ago, was able to use his computer to play chess online and a video game by simply using his mind.  FDA clearance has enabled Neuralink to begin surgeries.  Bloomberg reported last year the company had several surgeries planned for this year and that there will be dozens performed in the next couple years, with internal documents suggesting they could be into the thousands of surgeries by the year 2030.

Stock picks of the week

James Telfser, Aventine Investment: Heroux Devtek, AirBoss of America, ATS Corp, Entegris

Adam Johnson, Bullseye Brief: Boeing, Meta 

Allan Boomer, Momentum Advisors: Nvidia, Apple, Target, Amgen, Chevron 

Brian Belski, BMO Capital Markets: Progressive, BCE, GFL Environmental 

Thomas Martin, GLOBALT Investments: Micron, TJX, P&G

David Burrows, Barometer Capital: Nvidia, Freeport-McMoRan, Imperial Oil, Suncor, Canadian Natural Resources, Imperial Oil, Fairfax Financial, National Bank, WisdomTree Japan Hedged Equity Fund, SPDR Euro Stoxx 50 ETF