Sell “Exciting” Shopify Inc. (TSX:SHOP) in Favour of “Boring” TransCanada Corp. (TSX:TRP)

Selling Shopify Inc. (TSX:SHOP) (NYSE:SHOP) in favour of TransCanada Corp. (TSX:TRP) (NYSE:TRP) is one example of the type of move investors should make in their portfolios as market risks intensify.

| More on:

After a record start to the year for the S&P/TSX Composite Index (TSX:^OSPTX), up 6.5% year-to-date, the market feels a bit more upbeat than at the end of last year.

But caution is still warranted.

High debt levels, slowing economic growth, and rising interest rates all still present as risks to the stock market and stock prices. So in preparation for more shocks to come during the year, I recommend positioning our portfolios defensively, as defensive wins the day in difficult times.

That means we should stay away from the unpredictable high growth and highly valued stocks in favour of the more predictable, steady, attractively valued stocks. In other words, the “boring” stocks.

“Boring” stocks like TransCanada Corp. (TSX:TRP)(NYSE:TRP).

For more than 65 years, TransCanada has been developing and maintaining energy infrastructure, while handsomely rewarding shareholders.

With a current dividend yield of 5%, it’s hard to find a safer income stream at these levels than this.

In the last 10 years, TransCanada stock has provided shareholders with an over 60% return, while delivering yearly dividend increases, which brought the dividend per share from $1.52 to $2.76.

Recently, TransCanada stock has rallied 14% from its December 2018 lows.

TransCanada has above average, visible growth and an infrastructure presence that should ensure strong growth well into the future. Investors can expect continued dividend growth of 8% to 10% through to 2021, making the stock an attractive option for investors.

Doesn’t sound so boring now, right?

Now on to the more exciting Shopify Inc. (TSX:SHOP)(NYSE:SHOP).

While Shopify stock is up big from its December lows, up 31% to be precise, it’s a highly valued stock that lacks real visibility. As a reflection of this uncertainty and lack of visibility, we can look at the wide range of analyst estimates for the next two years.

If the high end materializes, the stock is already factoring this and more in the price, so no big deal.

But if the low end materializes, the stock will get bludgeoned for obvious reasons.

And while shareholders have done phenomenally well owning this stock in the past, I wonder if the future will look very different.

Valuation is really out of whack with fundamentals, the market is at risk, and investors may increasingly opt in favour of the more predictable, steady stocks as the year progresses.

I think you will see that while Shopify is definitely in a business of the future, fundamentals really need to play catch up to the stock price, as Shopify stock has benefitted from investor expectations and excitement over and above fundamentals.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of TRANSCANADA CORP. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Here’s the Average TFSA Balance at Age 44 in Canada

You can invest your TFSA in funds like the BMO Canadian High Yield Dividend ETF (TSX:ZDV) to grow the balance.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

The Best Telecom Stock to Buy Before 2025

Choosing the safest stock from a decimated sector can be tricky, but if there is a reasonable chance of full…

Read more »