Category Archives: Growth Investing

Warning: Railroad Stocks Are Expensive. What Should Investors Do?

Railroad stocks have been really resilient in this economic downturn. Some are even making all-time highs! However, they are all expected to experience earnings cuts this year on a GAAP basis, which is not surprising given the far and wide impact the COVID-19 pandemic is having on the global economy.

Stock Price Chart on North American Railroad Stocks

Railroad stock data by YCharts. The 1-year price action of railroad stocks: CN Rail, CP, UNP, NSC, and CSX.

In other words, these railroad stocks are getting expensive. Some are fully valued. Others are slightly overvalued.

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3 Tips To Improve Your Stock Returns

Are you new to stock investing or an experienced investor who wants to improve their stock returns? Here are a few tips that should help.

  • Know yourself well.
  • Know your stocks well.
  • Know the stock market well.

I will include examples to illustrate the points. 

Know Yourself Well as an Investor

Don’t know what stocks to invest in? Seek stocks that suit you in terms of your temperament and risk tolerance. You might need to test the waters to find your group of stocks.

One way to do so is by investing in a virtual account so that you won’t lose any real money if they turn south. If you can’t raise your enthusiasm from that, consider investing tiny amounts to get a feel of stock investing.

If you’re an aggressive investor and want high growth, consider growth stocks like Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA), and Tencent (TCEHY).

Conservative dividend stocks

If you’re a conservative investor, think about sticking with proven businesses. Personally, I find it’s easier to get started with dividend and value investing, which focuses on getting safe dividends and paying fair or better valuations for stocks. 

One stock I bought earlier this month that falls in this category is TC Energy (TSX:TRP)(NYSE:TRP). It is a top 15 Canadian dividend growth stock with 19 consecutive years of dividend growth. Its 10-year dividend growth rate is 7%. TRP stock is already up close to 7% from when I bought it. However, it still offers a juicy yield of almost 5.4%, which is still attractive levels.

TC Energy operates a gas and liquids pipeline and power and storage portfolio. Buying the stock at discounted valuations (such as now!) has led to double-digit long-term returns. There’s no reason that this time will be any different.

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Stock Market Crash 2020: 3 Top Stocks To Buy

Summary

  • Top stocks: United Airlines (and airline stocks in general), Carnival, and Booking
  • Higher risk investors can do their due diligence to see if the stocks are suitable investments for them
  • Carnival pays a dividend but it can cut the dividend if things get really bad

I made this video, and I hope it gives a broader perspective on the investment landscape on top of the usual dividend ideas I give.

In late January, in my video “Will the Stock Market Crash in 2020?”, I essentially said that any negative impact on the economy can “drag the market down to its normal valuation of about 17 times earnings or even lower.”

It’s actually happening.

Stock Market Crash 2020?!

The 2020 stock market crash came fast and furious! In about a week, the U.S. stock market has corrected 12%, while the Canadian stock market has fallen 9%.

Source: Ycharts with author annotation

Actually, I wouldn’t call this a stock market crash, yet. To me, a market crash is when the market falls 30-50%.

I know it’s scary to think that you can lose half of the value of your stock portfolio, but this has happened before and can happen again.

I’d visualize my stocks being cut in half periodically so that I won’t panic when it happens.

It’s a Normal Market Correction So Far

From time to time, it’s normal for stocks to correct 5-15% for whatever reason that may appear in news headlines.

Frankly, I welcome the decline as it was getting harder and harder to deploy money into the stock market. In case you haven’t noticed, the S&P 500, which is a proxy for the U.S. stock market, delivered total returns of 31.5% in 2019, which was more than 3 times its long-term average returns of 10%.

So, it’s only natural that the market is giving some of the gains back in a correction.

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