Warren Buffett, through Berkshire Hathaway, held two Canadian stocks for the longest time before COVID-19. In Q1 2021, Buffett’s conglomerate ditched its entire holdings in Restaurant Brands International (TSX:QSR)(NYSE:QSR) but surprisingly kept Suncor Energy (TSX:SU)(NYSE:SU).
Both companies suffered similar fates during the coronavirus outbreak. Between the two businesses, Suncor suffered the worst beating. Investors were shocked by management’s decision to slash dividends by 55%. Meanwhile, Buffett feared the shutdowns would cripple Restaurant Brands. Hence, he bade goodbye to his favourite fast-food chain.
In 2021, the quick-service restaurant stock and the energy stock remain quality long-term stocks. You can say the companies are well positioned for a well-deserved recovery.
Excellent reopening play
Restaurant Brands proved more resilient in 2020. From a low of $39.24 on March 18, 2020, the stock finished the year at $77.19, or 97% higher than its COVID low. As of May 3, 2021, the share price is $86.48 (+12% year-to-date gain), while the dividend yield is 3.02%.
Popeyes’s chicken sandwich became a sensation and the hottest item on the menu. For Q1 2021 (quarter ended March 31, 2021), the story is getting better. Restaurant Brands reported a 3% and 13% top-line and bottom-line increase, respectively, versus Q1 2020. According to RBI’s CEO, José E. Cil, the quarterly earnings results signal the return to growth.
The system-wide sales surpassed Q1 2019, while net restaurant growth nearly matching RBI’s best-ever Q1 performance in 2018. Furthermore, management is ecstatic about the early momentum and the global growth potential of Burger King, Tim Hortons, and Popeyes. Cil adds that home market recovery from the pandemic is well underway.
RBI’s successful execution of its Back to Basics plan should improve business fundamentals, including that of Tim Hortons. Likewise, the $80 million investment during the quarter should supercharge the advertising and digital platforms and cement Tim Hortons’s market-leading position. RBI is confident the right plan and hard-working franchises will drive long-term growth in 2021 and beyond.
Suncor Energy investors, including Buffett’s Berkshire Hathaway, lost 48% in 2020. However, the oil sands king appears to be on the comeback trail in 2021, with its 27% year-to-date gain. The current share price is $26.93, while the dividend yield is 3.15%.
The $41.08 billion energy firm is Canada’s largest integrated company. Suncor is also one of the lowest-cost producers in the oil sands of Alberta. Furthermore, its financial strength remains far better than mid-sized or smaller producers. The silver lining is that Canada’s oil space is starting to heat up.
On the stock market, the energy sector is the top performer thus far in 2021. For Suncor, market analysts are bullish and forecast an upside potential of 49% to $40. The prediction seems accurate given the company’s strong financial and operational results in Q1 2021 (quarter ended March 31, 2021).
From a net loss of $3.5 billion in Q1 2020, Suncor posted net earnings of $821 million. Likewise, operating net earnings were $746 million versus the net operating loss of $421 million in the prior year. More importantly, funds from operations increased to $2.11 billion. Buffett could be right in retaining Suncor Energy.
Back in investors’ radars
Restaurant Brands International and Suncor Energy are back in investors’ radars. The respective businesses are improving as the year progresses. Both are now attractive prospects for long-term investors.
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: short January 2023 $200 puts on Berkshire Hathaway (B shares), short June 2021 $240 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).