3 Canadian picks for a decade or two

Rob Miehm shares a few ideas for those with a 10 to 20-year time retirement horizon 

Robert Miehm 18 February, 2020 | 1:28AM

 

 

This article is part of the Morningstar Retirement Week special report

Robert Miehm: If you're looking to add a few Canadian companies to your retirement portfolio and you have a 10 to 20-year time horizon, we've got a few ideas you might want to consider. Keep in mind, we're assuming that you've already got a well-constructed, globally diversified retirement strategy that takes into consideration your time horizon, willingness and ability to take on risk. In the brief review of the potential investment ideas, we will concentrate on a look at their Morningstar Star Rating and their economic moat. Note that a stock's Star Rating takes into consideration the stock's current price, our estimate of its fair value and the uncertainty rating in its fair value. Morningstar economic moat represents a company's ability to sustain its competitive advantages.

A few companies worthy of consideration for the Canadian portion of an allocation to your retirement portfolio might be the following. Enbridge (ENB), Cameco (CCO) and Nutrien (NTR).

Enbridge (ENB) is an energy generation, distribution and transportation company and it's currently a 4-Star rated stock with a wide moat and a 6% expected dividend yield. We currently see the stock as undervalued given the expected strength and cash generation ability, especially once the Line 3 replacement project has built out and as the Spectra Energy acquisition continues to contribute to the bottom line. Enbridge has got a wide moat due to its strong North American pipeline system, which consists of the Canadian mainline system, regional oilsands pipelines and natural gas pipelines. Regulation within the industry serves as a solid barrier to entry for other firms. Continued growth in operating results should drive dividend increases for shareholders as we move forward.

Cameco (CCO) is one of the largest and lowest-cost producers of uranium globally and is currently a 5-Star rated stock with a narrow moat and 0.7% expected dividend yield. We expect appreciation in uranium prices as we move forward into the new decade, with price increases driven by favourable demand/supply balance for the commodity. Production in many mines has slowed over the last few years and demand is likely to be picking up. Demand is likely to pick up in China as it attempts to reduce its reliance on coal and the country continues with its reactor buildouts. New reactors in South Korea and India and restarts of reactors in Japan should also add to demand.

And finally, Nutrien (NTR), which operates in the agricultural market, is currently a 4-Star rated stock with a narrow economic moat and a 4.1% expected dividend yield. Nutrien's narrow moat is achieved by being the world's largest fertilizer producer by capacity and holding a strong competitive position in crop nutrients due to its cost-competitive position in both potash and nitrogen. They also have a network of 1,700 retail locations in North America, Australia and South America, providing a variety of products and services to growers. Our outlook for the stock is driven in part by an expected pickup in demand starting in the latter part of 2020 leading to positive price movement in crop nutrients. While you wait for fertilizer prices to move up, the retail side of their business geared towards individual growers should help to smooth out overall company revenues given any unwanted dips in prices.

From Morningstar Investment Management, I'm Rob Miehm.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cameco Corp12.62 CAD0.72
Enbridge Inc39.39 CAD-2.60
Nutrien Ltd48.88 CAD0.62

About Author

Robert Miehm

Robert Miehm  Robert Miehm is a senior investment analyst with Morningstar Investment Management.