10 Canadian Stocks to Own

These stocks feature in at least 3 of the top 10 holdings of gold-rated Canadian equity funds

Ruth Saldanha 25 March, 2021 | 4:38AM
Facebook Twitter LinkedIn

Lake in Canadian rockies

In Steal Like an Artist, author (and artist) Austin Kleon argues that nothing is completely original--we learn by copying. Morningstar.com’s director of content Susan Dziubinski points out that Kleon isn’t suggesting that plagiarism is OK. Rather, he tells readers that they should collect good ideas and allow themselves to be influenced by them.

“When it comes to investing, good ideas can come from a variety of places. The trick is taking these tips, researching them further, and deciding whether these investments are good choices for your portfolio based on your personal parameters,” Dziubinski says.

In that spirit, today, we’re looking at the top positions of highly rated Canadian Equity funds. We’ve looked for gold-rated funds, that also earn either four or five stars. As a reminder, the Star rating a data-driven rating that measures how well a fund has performed compared to similar funds. It is a backward-looking rating, and all else equal, funds that have beaten most of their peers will receive 4 and 5 stars, while funds that have underperformed will receive 1 or 2 stars. The Morningstar Quantitative Rating, or MQR, is a predictive rating. If a fund has a gold, silver or bronze rating, it means we believe this fund has the potential to outperform peers in future. 7 Canadian equity funds fit these parameters. Here they are:

Name

Morningstar Star Rating

MQR

Fidelity Canadian Opportunities Sr P3

5

Gold

Fidelity True North Cl P5

5

Gold

PH&N Vintage Fund F

5

Gold

RBC Vision Canadian Equity Fund F

4

Gold

MDPIM S&P/TSX Capped Comps Idx Pl F

4

Gold

Mawer Canadian Equity A

4

Gold

PH&N Canadian Growth Fund F

4

Gold

Manulife Cdn Investment Class F

4

Gold

Source: Morningstar Direct data as of March 22nd, 2021

“Readers may notice that there is an index fund that made today’s cut, which can serve as a reminder that one does not necessarily need to invest actively to achieve reasonable risk-adjusted returns. The performance of the MD fund shows that after fees it has managed to outperform the category average (which is made up of both active and passive funds and ETFs),” points out Morningstar Canada’s director of investment research.

We then looked at the top 10 holdings for each of the funds. We found 10 stocks that appear in at least three of the funds’ top 10 holdings. Here’s the list:

Name

Ticker

No of Funds Holding

Economic Moat

Moat Trend

FVE

Royal Bank of Canada

RY

5

Wide

Stable

1.00

The Toronto-Dominion Bank

TD

5

Wide

Stable

1.00

Shopify Inc A

SHOP

5

Narrow

Stable

1.64

Canadian Pacific Railway Ltd

CP

5

Wide

Stable

1.27

Brookfield Asset Management Inc Class A

BAM.A

5

Narrow

   

Canadian National Railway Co

CNR

4

Wide

Stable

1.23

Alimentation Couche-Tard Inc Class B

ATD.B

3

     

Bank of Nova Scotia

BNS

3

Narrow

Stable

1.11

Canadian Natural Resources Ltd

CNQ

3

None

Stable

0.88

Enbridge Inc

ENB

3

Wide

Stable

0.77

Source: Morningstar Direct data as of March 22nd, 2021

Morningstar analysts cover 8 of the ten. Of these, only two are undervalued – Canadian Natural Resources, and Enbridge. Let’s look at them in some detail.

Wide-moat Enbridge’s stock remains highly undervalued, according to Morningstar analyst Joe Gemino. “As a reminder, our fair value includes the probability that Line 3 is built and fully operational at 80% and that the pipeline is protected by its integrity replacement status at 20%. Enbridge is trading in 4-star territory and remains one of our top picks in the Canadian energy sector. We think the market is mistaken to price Enbridge as if oil prices will remain weak forever. However, we do not expect the market's concerns will be fully addressed for some time, which can lead to volatile swings in the stock. We advise investors to stay the course while getting paid a handsome 7.6% dividend. In the end, we believe Enbridge's long and winding road will lead to 30% upside,” he says.

Canadian Natural Resources is an independent energy company engaged in upstream operations coupled with the ownership of midstream pipeline assets. The company focuses on the acquisition, development, production, marketing, and sale of crude oil, natural gas, and natural gas liquids. Canadian Natural operates in western Canada, the U.K. sector of the North Sea, and offshore Africa.

“Canadian Natural's stock is trading in 4-star territory, and we still see upside to our fair value estimate. We think the market is overlooking the long-term ability to generate cash flow amid low Canadian commodity prices. Canadian Natural's portfolio spans a wide range of hydrocarbons that allow it to enjoy a corporate break-even under $35/barrel West Texas Intermediate, the best in class among oil sands producers. However, we caution investors that we don’t expect the stock price to fully appreciate toward our fair value estimate until oil prices recover, pipeline expansions are built, and the company increases its market access,” Gemino says.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alimentation Couche-Tard Inc Class B48.70 CAD-1.08
Bank of Nova Scotia77.13 CAD0.39Rating
Brookfield Asset Management Inc Class A71.00 CAD1.79
Canadian National Railway Co146.69 CAD-0.62Rating
Canadian Natural Resources Ltd43.25 CAD3.87
Canadian Pacific Railway Ltd82.68 CAD-0.17Rating
Enbridge Inc50.42 CAD0.28Rating
Royal Bank of Canada126.41 CAD0.86Rating
Shopify Inc A1,871.92 CAD1.55Rating
The Toronto-Dominion Bank82.20 CAD0.12Rating

About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies