Warren Buffett is a famous billionaire investor who made most of his fortune from stock market investing. As it is with famous people, they gather many followers and critics. Many analysts criticized Buffett for hoarding cash and not making a significant investment in the March 2020 downturn. They also criticized him for selling stocks instead of buying. But the followers went with Buffett’s contrarian approach of being fearful when others were greedy.
Investing is dynamic and, at the same time, passive. All big investors say one thing that you should give your investments is time. But at the same time, you should periodically keep checking how your investments are performing. Is there is an opportunity to buy more shares or sell some of those shares?
Warren Buffett also keeps realigning his portfolio, as per the changing dynamics of the market. He sensed the market dynamics of demand and supply. He sold shares of companies where he saw no demand and bought shares of companies where he saw the demand. This is because supply is something a company’s management can control but what they can’t control is demand.
That explains Buffett’s selling of airline and bank stocks. At near-zero interest rates, banks don’t look quite appealing. And with pandemic-induced travel restrictions, airlines have a long way before they see full-fledged demand.
Some critics may say that Buffett’s reluctance to invest in tech stocks bears an opportunity cost. But what they don’t see is that these inflated tech stocks go against his contrarian investing style. Hence, he invested in stocks where others are fearful, and he saw long-term demand. You can get a similar contrarian exposure with two Canadian stocks.
Buffett invested an $8.6 billion stake in Verizon in the fourth quarter. Verizon is the largest telecom carrier in the United States and is spending aggressively on 5G. It overtook T-Mobile and AT&T in the bid for 5G airwaves. Verizon has the highest operating margin (24.5%) and an attractive valuation (13 times price-to-equity ratio) among the three.
Verizon’s Canadian counterpart is BCE (TSX:BCE)(NYSE:BCE), the largest telecom operator. Compared to Telus, the second-largest telecom operator, BCE has a better operating margin (22.5%) and valuation (20 times price-to-equity ratio). BCE is accelerating its investment in 5G footprint expansion. Moreover, it has increased its 2021 dividend per share by 5.1%. This dividend growth is slower than its average rate of 6.4% but better if you discount the coronavirus impact.
BCE also offers an attractive dividend yield of 6.3%, which means a $5,000 investment can earn you $311 in annual dividend income. If BCE continues to increase its dividend at an average rate of 6%, your annual dividend income will grow to $525 by 2030.
Buffett invested $4.1 billion in integrated oil company Chevron in the fourth quarter. He has been eyeing oil stocks, even during the pandemic when oil demand plunged significantly. He did not sell his oil stocks. Instead, he increased his stake in Suncor Energy (TSX:SU)(NYSE:SU) and bought Dominion Energy’s natural gas transmission business.
From the past crisis, Buffett learned that oil demand will return, and therefore it is a buy at the dip. At IHS Markit’s online CERAWeek conference, Saudi Aramco and Chevron chief executives said that global oil demand could recover to the pre-pandemic level by 2022.
Suncor is Canada’s largest integrated oil company and has a history of paying regular dividends. However, the pandemic fallout forced Suncor to halve its dividends, as it had to shut down oil production to adjust supply with oil demand. The company cut expenses to reduce its cost per barrel. These optimization efforts will improve efficiency and lead to higher profits when the oil price rises. You could also see a higher dividend-growth rate in the future.
However, Suncor will face environmental challenges in the long term, as the government promotes renewable energy. The stock has a dividend yield of 3.14% and has the potential to grow 50% if the stock price returns to the pre-pandemic level. A $5,000 investment can earn you $2,600 in dividend and capital appreciation.
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Dominion Energy, Inc, T-Mobile US, and Verizon Communications.
The post Warren Buffett: Top 2 Contrarian Stocks to Buy in March appeared first on The Motley Fool Canada.
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