Warren Buffett: Avoid Canadian Stocks at All Costs?

Warren Buffett’s ditching of Restaurant Brands International stock doesn’t mean investors should avoid Canadian stocks. If that were his position, he won’t add more shares of the Suncor Energy stock, which is an industry bellwether in the TSX.

| More on:

Should investors give meaning to Warren Buffett’s decision to sell his entire holdings in Restaurant Brands International (TSX:QSR)(NYSE:QSR)? Is the legendary investor telling people to avoid Canada’s equities market at all costs? Many are wondering what his motivations are after he supported the fast-food chain operator for decades.

If you compare the year-to-date performance of the TSX with the three main U.S. exchanges, you might say Buffett was correct to make a move. As of October 1, 2020, the NASDAQ (+26.23%), S&P 500 (+4.64%), and Dow Jones (-2.53%) are outperforming the TSX (-5.15%).

However, I believe it’s more of Buffett’s bleak outlook for quick-service restaurants, not the TSX in particular. Although Berkshire Hathaway sold all Restaurant Brands shares in Q2 2020, the company bought more shares of Canadian oil kingpin Suncor Energy (TSX:SU)(NYSE:SU).

Challenged business

Restaurant Brands is a major player in the quick-service restaurant space globally, but COVID-19 disrupted its operations in the first quarter of 2020. Buffett is veering away from businesses that are gravely affected by shutdowns. His divestment didn’t influence investors much as operations came back to life in the next quarter.

Despite the unprecedented challenges due to the pandemic, Restaurant Brands posted 90% of prior year’s system-wide sales in Q2 2020. About 93% of its restaurants worldwide have resumed operations. According to Jose Gil, RBI’s CEO, drive-thru, digital, and delivery channels were important differentiators.

The risk to RBI going into the fourth quarter is the sharp rise in COVID-19 cases. In Canada, the average daily case counts are approaching the peak levels in April. Canada’s chief public health officer, Theresa Tam, said things have escalated quickly and can escalate further. Nationwide closures of restaurants and bars might follow.

Better value

Why did Buffett dump Restaurant Brands and keep struggling Suncor Energy? The GOAT (greatest of all time) of investing builds his wealth over the long term. He sees the oil company as a better value proposition, especially when crude prices rebound.

Thus far, the energy sector is the worst performer (-57.03%) on the TSX. Meanwhile, Suncor investors are losing 62.44% year to date versus the -4.45% of RBI investors. The headwinds are strong due to the twin impact of the COVID-19 and depressed oil prices.

Suncor’s operating loss widened to $1.49 billion in Q2 2020, following the $309 million operating loss in Q1 2020. From a top line of $9.5 billion in Q4 2019, revenues sank to $7.4 billion and $4.2 billion in Q1 2020 and Q2 2020. Because of the declining top and bottom lines, management cut dividends.

For prospective investors, the 5.42% dividend is still above the average yield on the S&P 500 Index in the U.S. Neil Mehta, an analyst at Goldman Sachs, says Suncor maintains a healthy balance sheet. The margin-enhancing projects through 2025 can potentially deliver $2 billion in cash flow growth. Many analysts recommend a buy rating for the cheap but embattled energy stock.

Not betting against the TSX

I don’t think you should bet against TSX stocks yet. If that is what Warren Buffett is suggests, Berkshire Hathaway won’t boost its holdings in Suncor Energy. Also, the conglomerate purchased 20.9 million shares of Canadian mining stock Barrick Gold in Q3 2020.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »