Warren Buffett Won’t Touch This 1 Canadian Stock With a 10-Foot Pole

Warren Buffett lost confidence in Restaurant Brands International stock and sold his entire holdings in 2020. However, the quick-service restaurant continues to display resiliency, despite the industry headwinds.

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Countries around the world had different responses to the 2020 pandemic. In Canada, there was a swift response by the federal government to prevent the spread of the coronavirus and mitigate its impact on the economy. In the stock market, investors looked to Warren Buffett for guidance.

The legendary investor said about COVID-19, “We haven’t faced this exact problem, but we’ve faced tougher problems.” Still, Buffett was also blind-sided when the pandemic struck. His first response was dump stocks in pandemic-stricken industries.

With the lockdown affecting the restaurant business, Buffett’s Berkshire Hathaway sold its entire stock holdings in Restaurant Brands International (TSX:QSR)(NYSE:QSR). The shares of the Canadian quick-service restaurant icon were displaying a strong growth trajectory before the pandemic.

The move to sell the Restaurant Brands was shocking to Buffett’s loyal followers. He dropped the fast-food chain operator and took a new position in Barrick Gold. People know that the GOAT of investing had little confidence in gold. Today, Buffett won’t touch the restaurant stock with a ten-foot pole.

Resilient restaurant stock

The shutdowns sent fears through Restaurant Brands investors, including Buffett. On March 16, 2020, the stock fell 21% from $61.41 to $48.68. It hit rock bottom and closed at $39.56 on March 18, 2020. However, the sharp decline was temporary, as the restaurant stock continues to display resiliency.

As of year-end 2020, the share price is $77.83, or a 97% rally from its COVID low. For the year, QSR lost by only 2%. The $23.65 billion operator of Burger King, Tim Hortons, and Popeyes also pays a 3.44% dividend.

High-quality investment

Unlike Buffett, billionaire Bill Ackman never lost confidence in Restaurant Brands. The hedge fund manager and CEO of Pershing Square Capital see the quick-service restaurant as a high-quality investment, particularly in post-pandemic. The business has predictable cash flows, durable growth, and a catalyst in the coronavirus era.

Pershing Square’s investments are extensive. Likewise, it boasts of a successful track record investing in restaurants. Ackman’s firm has never lost money on any investments in the industry. On average, the return is 55.22%.

Buffett is a long-time QSR investor, but his appetite soured due to the pandemic. Ackman has been an investor in the pure franchising company since 2012. His company also dumped its entire stock holdings in Berkshire Hathaway in 2020. Ackman expects Restaurant Brands to do even better in 2021, as people aim to spend less on meals in a recessionary environment. For safety reasons, customers would prefer take-out or drive-thrus than dining in.

Restaurant trends

Expect Restaurant Brands and similar businesses to take a different marketing approach this year. The company is modernizing its drive-thru at existing restaurants by installing digital screens with predictive selling technology. It will also most likely invest heavily in technology to digitally connect with frequent customers and deepen loyalties. Last December, Burger King teamed up with Google.

QSR’s burger chain plans to roll out mobile-focused restaurants. More than 5,000 restaurants nationwide will have the service. The new features would include dedicated mobile order and curbside pickup areas, drive-in and walk-up order areas and enhanced drive-thru. Another critical advantage is menu reduction, because it improves drive-thru time while helping reduce costs and support struggling franchises.

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Christopher Liew has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Berkshire Hathaway (B shares). The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares) and long January 2021 $200 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

Dividend Stocks

Top Canadian Stocks to Buy Right Now With $1,000

Investing in stocks is not about timing but consistency. If you have $1,000 to invest, these stocks offer an attractive…

Read more »

cloud computing
Dividend Stocks

Is Manulife Stock a Buy for its 3.5% Dividend Yield?

Manulife stock has been a long-time dividend winner, but the average has come down over the last few years. So…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 7.5% Dividend Stock Pays Cash Every Single Month

Monthly dividend income can be a saviour, but especially when it provides passive income like this!

Read more »

jar with coins and plant
Dividend Stocks

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

These TSX stocks still offer attractive dividend yields.

Read more »

concept of real estate evaluation
Dividend Stocks

Invest $23,253 in This Stock for $110 in Monthly Passive Income

Dividend investors don’t need substantial capital to earn monthly passive income streams from an established dividend grower.

Read more »

Dividend Stocks

3 Mid-Cap Canadian Stocks That Offer Reliable Dividends

While blue-chip, large-cap stocks are the preferred choice for most conservative dividend investors, there are some solid picks in the…

Read more »

The letters AI glowing on a circuit board processor.
Dividend Stocks

Is OpenText Stock a Buy for Its 3.6% Dividend Yield?

OpenText stock has dropped 20% in the last year, yet now the company looks incredibly valuable, especially with a 3.6%…

Read more »

calculate and analyze stock
Dividend Stocks

How to Use Your TFSA to Earn $6,905.79 Per Year in Tax-Free Income

Put together a TFSA and this TSX stock, and you could create massive passive income from returns and dividends.

Read more »