The Canadian food service sector laid off 800,000 people in March as the coronavirus crisis forced shutdowns across the country, according to a survey released on Thursday.
Restaurants Canada, the industry association behind the survey, is now warning that nearly 30 per cent of restaurants will not reopen if the situation continues unchanged for another month.
“There’s a lot of people who just won’t make it through May 1 or June 1,” said David Lefebvre, the association’s vice-president for federal affairs.
The 800,000 out-of-work employees are about two-thirds of the country’s entire food-service labour force, which totals some 1.2 million people. Many more workers have likely been let go since the survey was conducted last week: 70 per cent of respondents said they were planning more layoffs in the near future.
A growing chorus of concerned restaurateurs have formed a coalition to pressure the federal government to do more, arguing that the 75-per-cent wage subsidy and $40,000 loans for small businesses won’t be enough to prevent damage that could take a generation to recover from.
Save Hospitality, a group of more than 1,000 restaurant owners, said it is meeting with political officials to develop a restaurant-specific stimulus plan, since wage subsidies won’t be able to prop up the hospitality sector amid blanket bans on social gatherings that stop most restaurants from operating. The $40,000 no-interest government loans will barely cover one or two month’s rent, the group said.
“Some of our rents are over $100,000 a month,” said Andrew Oliver, one of the Save Hospitality leaders and chief executive of Oliver & Bonacini Hospitality Inc., which has 26 locations in Canada, including the Bay Street institution Canoe and several other prominent downtown Toronto restaurants.
Food-service revenues are expected to drop by $20 billion during the second quarter of 2020, Restaurants Canada said. Some restaurants continue to offer takeout and delivery, but those options for most are the equivalent of “putting on a Band-Aid when you’ve lost your leg,” said Oliver, whose business has lost 99 per cent of its revenue despite offering take-out at a few locations.
“This has been one of the most devastating times of my life. I had to lay off thousands of people, ruin thousands of dreams,” he said. “One of the hardest things is I’ve had a dozen calls or text messages, people reaching out, asking me to take the keys to their place because they’re going to give up.”
The Restaurants Canada survey was conducted from March 25 to March 29 with 655 restaurateurs who operate 13,300 locations in total. It found that 10 per cent of the country’s 97,500 restaurants, bars and cafés have already permanently closed. Another 18 per cent said they will be forced to close for good within a month if current conditions continue.
“In the next 30 days, you have one in three restaurants boarded up. Think about that for a minute,” Oliver said. “If all of our costs continue to build with zero revenues for three months … when they come up with this report again, we might have it where one in 10 restaurants think they will survive. Imagine what that looks like for the economy.”
I had to lay off thousands of people, ruin thousands of dreams
Andrew Oliver, CEO, Oliver & Bonacini Hospitality
Save Hospitality wants forgivable government loans to keep businesses alive through the coronavirus crisis and incentivize them to reopen and hire back employees as soon as it’s safe to do so. The group is suggesting the loans should count for 10 per cent of a restaurant’s annual revenue, and could be provided by the banks, but funded and guaranteed by the federal government.
“Make that investment for us so that we can continue to pay you guys the tens of billions of dollars in taxes that we contribute to our communities,” Oliver said.
Federal programs to support laid-off workers and even calls to defer rent payments and property taxes are only stop-gap measures, Oliver said. If the only solution is to delay paying expenses, he said business owners — in an already low-margin industry — will emerge from the crisis with crippling debt, leading to a much higher vacancy rate and a steep drop in market rents.
For part-time investors, it can be difficult to stay on top of your portfolio holdings. This is especially true during times of significant volatility. It is why investors should choose which stocks to buy carefully.
If you don’t have the time to actively monitor your positions, owning over 50 stocks may not be the right approach. If you are holding a large portfolio in an effort to diversify, you may be over extending yourself.
The purpose of diversification is to reduce unsystematic risk. Research has shown that the benefits of diversification tops out at around 30 positions. The diversification benefits only inch up marginally for every position added afterwards.
Keeping all this in mind, what is the best approach for the part-time retail investors? Identify stocks to buy that can be held forever. These are best-in-class, blue chip stocks that will act as foundational stocks in a portfolio.
Railway stocks to buy
The railway industry is dominated by two players, Canadian Pacific Rail(TSX:CP)(NYSE:CP) and Canadian National Railway(TSX:CNR)(NYSE:CNI). They form a duopoly and as such, have some of the widest moats in the country.
Although both make excellent investments, the top stock to buy today is CN Rail. The railway is trading at 4.47 times book value, a steep discount to peer CP Rail (6.73). CN Rail’s debt burden is also much less, with a debt-to-equity ratio of 0.79. For its part, CP Rail’s D/E ratio is sitting at 1.28.
Similarly, CN Rail is a Canadian Dividend Aristocrat. It has a dividend growth streak that spans 24 years, the tenth longest in the country. At 1.94%, the yield is also double that of CP Rail (0.94%). Over the past decade, CN Rail has averaged 15.6% annual dividend growth.
Looking forward, analysts are expecting a down year in 2020 – not surprising given the current pandemic. Still, the company is only expected to see earnings dip by about 8% before rebounding in a big way (+17%) in 2021.
CN Rail is one of the safest stocks to buy. You can buy without having to check up on the company daily to see if the investment thesis has changed.
A top bank
In today’s environment, financial stocks are under pressure. Not even Canada’s Big Banks are immune, and most are sitting on significant losses. However, recent results are proving once again that Canada’s banks are resilient and are top stocks to buy — perhaps none more so than Royal Bank of Canada(TSX:RY)(NYSE:RY).
As Canada’s largest bank, it has the means to come out on the other side of this pandemic on solid footing. Just as it did during the Financial Crisis, it appears that RBC will escape the current pandemic with a dividend cut.
Now yielding 4.84%, investors can lock in a yield close to record highs. During this pandemic, Royal Bank has been the best-performing bank. Despite losing 13.06% of its value, it is far outpacing the majority of its peers.
Despite bouncing off March lows, Royal Bank is still trading at only 1.6 times book value and 11.44 times earnings. Both of which are below historical averages.
RBC is proving once again to be a top stock to buy and is one of the best hold forever options for investors. Unless the entire economy and banking system goes belly up, investors can sleep well knowing Royal Bank is anchoring their portfolios with stable and reliable returns.
If you are looking for other top stocks to buy today, check out the attractive investment opportunities.
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Fool contributor Mat Litalien owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.
Canadian carriers Bell and Telus announced on Tuesday that each of them would not be continuing the use of Huawei equipment in their respective 5G networks, having signed deals with the Chinese giant’s rivals instead.
For Bell, it announced Ericsson would be supplying its radio access network. It added that it was looking to launch 5G services as the Canadian economy exited lockdown.
Bell, which in Febraury announced it had signed an agreement with Nokia, said it was maintaining the use of multiple vendors in its upcoming network, as it had for 4G.
“Ericsson plays an important role in enabling Bell’s award-winning LTE network and we’re pleased to grow our partnership into 5G mobile and fixed wireless technology,” said Bell chief technology officer Stephen Howe.
Meanwhile, the British Columbia-based Telus also chose to go with a combination of Ericsson and Nokia.
The company said it had spent CA$200 billion on its network since the turn of the century, and would part with a further CA$40 billion over the next three years to deploy its 5G network.
Both Bell and Telus had previously used Huawei equipment in their networks. In February, Telus told the Financial Post it would be using Huawei in its 5G network.
The third member of the Canadian major telco triumvirate — Rogers — said in January it would be using Ericsson equipment for its 5G rollout.
The decisions from Canada’s three major carriers now mean Huawei is increasingly isolated from 5G builds within the Five Eyes nations.
Huawei is also at the centre of the trade dispute between the United States and China, with Washington recently clamping down on Huawei’s semiconductor supply, with companies needing an export licence to sell to the Chinese giant.
Although not officially banned, Huawei has not made inroads in New Zealand after GCSB prevented Spark from using Huawei kit in November 2018.
Meanwhile in the United Kingdom, although it in January decided to limit the involvement of Huawei — restricting it to a 35% cap of all radio equipment and preventing the Chinese giant from supplying any equipment in the core of the network, as well as banning the use of Huawei equipment at sensitive locations such as nuclear sites and military bases — reports last month said that the decision would be reviewed.
Last week, the British Columbia Supreme Court ruled the extradition could proceed. CBC reported that the presiding judge ruled that the fraud that Meng has been accused of would be a considered a crime in Canada, as well as the United States.
Meng, the daughter of Huawei’s founder, is currently on bail where she is required to stay confined to one of her two Vancouver homes between 11pm and 6am. In the United States, Meng currently faces an indictment for allegedly misrepresenting Huawei’s ownership and control of its Iranian affiliate, Skycom, to banks, which breached UN, US, and EU sanctions.
“Not only are their conditions terrible but they are cut off from any meaningful connection and at this time of pandemic they seem to be even more remote,” former Canadian ambassador to China David Mulroney told The Globe and Mail.
“It’s a hostage-taking and the ransom demand is Meng Wanzhou.”
Saudi Arabia and Russia have reached a preliminary agreement to extend the current level of the OPEC+ production cuts by one month, provided that the laggards in compliance ensure over-compliance going forward to compensate for flouting their quotas so far, OPEC sources told Reuters on Wednesday.
“Any agreement on extending the cuts is conditional on countries who have not fully complied in May deepening their cuts in upcoming months to offset their overproduction,” an OPEC source told Reuters.
According to the original agreement reached in April, OPEC+ was to cut 9.7 million bpd in combined production for two months—May and June—and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022.
Despite weak compliance from OPEC in May, as per a Reuters survey, the market expects that the OPEC+ coalition is motivated enough to extend the 9.7-million-bpd cuts through July or August.
However, an earlier meeting is being held up by the fact that the leaders of the pact, Saudi Arabia and Russia, will be seeking assurances from all non-compliant members that they will over-comply going forward to compensate for the loose compliance in May, an OPEC delegate told Argus today. According to the delegate, there will be “no free ride” for non-compliant members in the OPEC+ deal. These producers likely include Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC.
OPEC’s second-largest producer and the biggest laggard in the output cuts, Iraq, said on Tuesday that it would further reduce production and that it remains committed to the OPEC+ pact.
Oil prices retreated following the reports of a one-month extension, after earlier on Wednesday prices had hit nearly three-month highs, with Brent Crude breaking above $40 a barrel.
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