Warren Buffett is known for his bets against the tide in stock market crashes and bear markets. His mindset of buying the best companies during the worst markets has paid off during his leadership at Berkshire Hathaway. If you had invested $ 1,000 in Berkshire in 1964, your investment today would be worth around $ 27 million! He seems to know a thing or two about betting against the tide.
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 take an interest in it is when no one else is. You cannot buy what is popular and do well. This statement was especially true this year when Mr. Buffett purchased a gas pipeline from Dominion Energy. Many commentators have criticized the investment for the fact that Berkshire appeared to be doubling its “dirty” oil investments. Energy stocks were trading near all time lows, and it didn’t look like the oil sector would ever recover.
Still, I think Warren Buffett saw a great opportunity to buy a solid asset in a bad market. Regardless of the pandemic, renewable energy, or any ongoing struggle in OPEC, people need natural gas to heat and power their homes. Therefore, I believe this contrarian investment will be very profitable for Berkshire.
Beat the market with this Warren Buffett action
With potential COVID-19 vaccines, we are already starting to see a new supply for cyclic energy stock. If you want to beat “the popular” the Warren Buffett way, then here is one of the big TSX energy stocks that still has a long way to go.
This high-quality TSX share is reminiscent of the pipeline that Warren Buffett has just acquired. It is TC Energy (TSX: TRP) (NYSE: TRP). TC owns and operates one of the largest gas pipeline systems in North America. It also operates a network of liquids pipelines and seven natural gas power plants. Since the start of the year, the stock is down 14%; however, since November 6, the stock has seen a nice rise of 15%.
Despite a difficult sector, this activity is stable
Despite operating in an unloved and volatile industry, TC has an operating model that Warren Buffett would envy. 95% of its EBITDA comes from regulated assets or long-term contracts. Therefore, the company has been able to steadily increase its dividend every year since 2000. Since then, it has enjoyed a dividend CAGR of 7%!
Today, TC is investing $ 37 billion in its infrastructure. Management estimates that this could increase an EBITDA CAGR of 7% over the next four years. Now, it is not without risks. Its biggest project, the Keystone XL pipeline, could be canceled by a Biden presidency. Yet a large number of the remaining projects focus on organ systems improvement, regulated maintenance or gas 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 fuels and natural gas transportation for many years to come. In fact, reducing energy costs and production could quickly lead to shortages in mid-2021. Therefore, the best remedy for low energy prices is low energy prices. As a result, TC Energy could see a strong rally sooner than you think.
Like Warren Buffett, buy this stock before the market likes it
The point is, this stock is inexpensive 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. With that in mind, you are hardly taking a risk by being patient like Warren Buffett and buying that great stock of energy today!
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Fool contributor Robin Brown owns shares of Berkshire Hathaway (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 December 2020 calls at $ 210 on Berkshire Hathaway (B shares), long January 2021 calls at $ 200 on Berkshire Hathaway (B shares) and short January 2021 options sale of $ 200 on Berkshire Hathaway (B Shares).