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Warren Buffett is known for making contrarian bets during market crashes and bear markets. His mentality of buying the best companies during the worst markets paid off during his leadership in Berkshire Hathaway. If you had invested $ 1,000 in Berkshire in 1964, your investment would be worth around $ 27 million today! He seems to know a thing or two about contrarian betting.
Buy the best stocks in the worst markets
Warren Buffett once said, “Most people are interested in stocks when everyone else is. The time to be interested is when no one else is. You can’t buy what’s popular and do well. ”This statement sounded especially true this year when Mr. Buffett bought a natural gas pipeline. Dominion Energy. Many commentators criticized this investment on the grounds that Berkshire appeared to double its “dirty” oil investments. Energy stocks were trading near all-time lows and it didn’t look like the oil sector would ever recover.
However, I think Warren Buffett saw a great opportunity to buy a strong asset in a negative market. Regardless of the pandemic, renewable energy, or any struggle that occurs in OPEC, people need natural gas to heat and power their homes. As a result, I think this contrarian investment will pay off Berkshire well.
Beat the market with this Warren Buffett title
With potential COVID-19 vaccines, we are already starting to see a new supply for the cyclical energy stock. If you want to beat “what’s popular” in the manner of Warren Buffett, here’s a great energetic TSX title that still has a long way to go.
This high-quality TSX title is no different from the pipeline Warren Buffett has just acquired. IS TC Energy (TSX: TRP) (NYSE: TRP). TC owns and operates one of the largest gas pipeline networks in North America. It also operates a pipeline network for liquids and seven natural gas power plants. Since the beginning of the year, the stock has fallen by 14%; however, since 6 November, the stock has registered a nice 15% rise.
Despite a difficult industry, this business is stable
Although operating in an unloved and volatile industry, TC has an operating model that Warren Buffett would envy. 95% of its EBITDA comes from regulated activities or long-term contracts. As a result, the company has been able to steadily increase its dividend every year since 2000. Since then, it has enjoyed a 7% CAGR dividend!
Today, TC is investing $ 37 billion in its infrastructure. Management believes this could accrue an EBITDA CAGR of 7% over the next four years. Now, it’s not without risk. Its largest project, the Keystone XL pipeline, could potentially be canceled by a Biden presidency. However, a good part of the projects focus on organic system improvements, regulated maintenance or pipeline extensions. Most have a high probability of completion.
Regardless of the growth of renewables, North Americans and people around the world will continue to need fuel and natural gas transportation for many years to come, in fact, reductions in energy spending and production could quickly lead to shortages in half. of 2021. Consequently, the best remedy for low energy prices is the low price of energy. As a result, TC Energy may see a strong recovery sooner than one might think.
Like Warren Buffett, buy this title before the market loves it
The point is, this stock is cheap compared to historical valuation metrics. It pays an excellent dividend of 5.5% which is expected to grow 8-10% in 2021 and 5-7% beyond. That said, you’re hardly taking a risk by being patient like Warren Buffett and buying this amazing stock of energy today!
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Silly contributor Robin Brown owns Berkshire Hathaway shares (B shares). The Motley Fool owns shares and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Dominion Energy, Inc and recommends the following options: short calls in December 2020 from $ 210 on Berkshire Hathaway (B shares), long calls in January 2021 to $ 200 on Berkshire Hathaway (B shares) and short calls in January 2021 $ 200 to Berkshire Hathaway (B Shares).
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