2 Canadian Behemoths, 1 Winning Stock: Which Is a Buy for New TSX Investors?

Finning International Inc. (TSX:FTT) and one other big-name Canadian stock go head to head.

| More on:

When trawling through the TSX index for shares to stack in your personal investment portfolio, it’s tempting to stick to names and brands you are already familiar with. But sometimes it’s not that easy. The following two stocks may not be instantly recognizable to new investors, but both represent brands that pretty much everybody either knows of or has direct experience with. Let’s dig into the data and see which is the stronger buy.

Finning International (TSX:FTT)

You may not have heard of Finning International as a new or young investor, but you’ve surely come across Caterpillar, the brand that this stock is famous for. With a one-year past earnings growth of 52.8% that outperforms the market, Finning International is strong play if you favour track records as signifiers of a stock to buy and hold. With more shares bought than sold through inside buying in the last three months, you’d be in good company if you went for this one.

In terms of value, you can do better from a TSX index stock, but the ratios aren’t bad: a P/E of 17 times earnings is good enough, and while a P/B of two times book shows that you’d be paying double the per-asset valuation, it’s also not that bad. A dividend yield of 3.21% shows that this could also be a strong buy for a TFSA or RRSP.

In terms of quality, an ROE of 12% over the past 12 months matches a positive but not outstanding last-quarter EPS of $1.46. A 4.5% expected annual growth in earnings isn’t terribly significant, while a comparative debt level of 72.8% of net worth signals a so-so balance sheet; in summary, this stock is okay, but not anything that special.

The TSX index has some great momentum stocks, with everything from legal weed to miners competing for a capital gains portfolio. Having gained 4.3% in the last five days, and with a beta of 1.85 indicating fairly high volatility, Finning International could almost qualify. However, despite its share price is overvalued by twice its future cash flow value, the trend has been generally downwards since the middle of last year.

BCE (TSX:BCE)(NYSE:BCE)

Up 1.06%, BCE’s trend is hard to keep track of with all those peaks and troughs, and this largely counts it out as a casual capital gains play, unless you have the time to watch its share price like a hawk. Instead, BCE offers a dividend yield of 5.3% and would be a potential pick for a TFSA or RRSP — if it weren’t for some dodgy stats, that is.

A one-year past earnings growth of -3.9% shows how sluggish 2018 was for BCE; however, a five-year average past earnings growth of 7% shows that the last half a decade hasn’t been significantly positive, either. With a so-so balance sheet indicated by a debt level of 115.7% of net worth, insiders have sold more shares than bought them in the last three months, which is something of a red flag when it comes to overall confidence.

The bottom line

In terms of value, you could do better than BCE: While a P/E of 18.6 times earnings isn’t too bad, a P/B of three times book is a little bloated. A 7% expected annual growth in earnings is positive but certainly does not mark this stock as high growth in relation to the TSX index as a whole. All told, though BCE does have the higher dividend yield and slightly better outlook, Finning International looks like the stronger stock to buy now.

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 Victoria Hetherington has no position in any of the stocks mentioned. Finning is a recommendation of Stock Advisor Canada.

More on Stocks for Beginners

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

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

2 Top TSX Growth Stocks to Stash in a TFSA for Life

These two growth stocks may not be the top in the last month, but in the last few years, they…

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

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

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »

A worker uses a double monitor computer screen in an office.
Stocks for Beginners

Why I’d Buy Fairfax Financial Stock Even at Today’s Prices

Fairfax stock just keeps edging higher. But is it now too expensive, or can investors just look forward to even…

Read more »