Build a Strong Portfolio Foundation with Oligopoly Stocks

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Dividend Earner

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New investors want to succeed and not lose their money in the first year and other investors want a solid foundation for a strong retirement portfolio.

When building a portfolio, you need to start somewhere, and the easiest way is to start with the stocks you will hold forever. Those stocks are known as the foundational stocks. They are the go-to stocks for many investors and those investments that let you sleep at night.

The simplest way to find the foundational stocks for your portfolio is to look into the oligopoly stocks.

By looking into those oligopoly companies, not only do you get a defensive investment during hard times, but you also get an investment that can go in the offensive to generate good returns.

As you go through the stocks below, you will notice that you can find them in both the beginner model portfolio and the model retirement portfolio.

What Is A Foundational Stock?

A foundational stock will often be seen as a blue-chip stocks but as you know, not all blue-chip stocks are equal.

You need to go a step further to consider your blue-chip stock as foundational and it’s to ensure it has a stable business.

You want to look for a mega cap or a large cap stock in a mature business cycle. Anything outside of that and you are adding risk which is the opposite of a foundational stock. Often times, the market cap tends to map to the business cycle but if you want a primer see below.

wdt_ID Market Cap Tier Value Range
1 Mega Cap > $200B
2 Large Cap $10B - $200B
3 Mid Cap $2B - $10B
4 Small Cap $300M - $2B
5 Micro Cap $50M - $300M
7 Nano Cap < $50M

Business Life Cycle

  • Start-up: A new launching new products or services. Rarely do they trade on the stock market. Still proving themselves ahead of an IPO.
  • Growth: Successful launch and growing. Usually with rapid sales growth. Looking at an IPO and turning a profit.
  • Established: Sales are slowing down from competition or saturation.
  • Maturity: Sales are normalizing, and profit margins are getting thinner.
  • Expension/Decline: This is an adapt, or fail turning point. Larger companies will have products go through the cycle internally at faster rate.

What Is An Oligopoly Stock?

An oligopoly stock is a company that operates in an industry where there are only a handful of companies that compete with each other and with little room for new entrants.

Governments tend to watch them closely and will usually bring regulations to avoid them forming a monopoly as it’s not in the best interest of consumers.

While an oligopoly company has limited competition, it can also have more regulations to balance their strength in regard to the consumers. Those companies must play by an increase set of rules and work to reward investors.

Here are a few industries with oligopolies in Canada:

  • Telecommunication services
  • Railway
  • Regulated Utilities

Start With Oligopoly Stocks

The easiest way to start investing and turn on the compounding machine is to start with oligopoly stocks and the near oligopoly stocks. Below is the list by their industries.

Telecommunication Services Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
BCE TSE:BCE BCE 58.79 20.53 5.71 YES 1 2 99
T TSE:T Telus 41.58 22.52 4.50 YES 1 2 99
RCI.B TSE:RCI.B Rogers 30.02 17.62 3.39 NO 1 2 99
SJR.B TSE:SJR.B Shaw Communications 17.49 20.80 3.38 NO 1 2 99

Utilities – Regulated Electric Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
FTS TSE:FTS Fortis 28.85 22.79 3.55 YES 1 12 106
H TSE:H Hydro One 21.13 20.69 3.17 NO 1 12 106
EMA TSE:EMA Emera 16.33 29.44 4.31 YES 1 12 106

Railroad Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
CNR TSE:CNR Canadian National Railway 113.17 22.45 1.79 YES 1 9 78
CP TSE:CP Canadian Pacific Railway 96.46 35.80 0.73 YES 1 9 78

Pipeline Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
ENB TSE:ENB Enbridge 112.48 22.99 6.19 YES 1 5 71
TRP TSE:TRP TC Energy 64.24 20.43 5.51 YES 1 5 71
PPL TSE:PPL Pembina Pipeline 26.63 18.54 5.25 YES 1 5 71

What About Dominant Companies?

There are cases for dominant companies that operate like an oligopoly while being open to competition such as the banks or the insurance companies.

Big Bank Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
RY TSE:RY Royal Bank 181.49 11.19 4.00 YES 1 7 21
TD TSE:TD TD Bank 157.23 10.74 4.12 YES 1 7 21
BNS TSE:BNS Scotia Bank 96.82 9.73 5.13 YES 1 7 21
BMO TSE:BMO Bank of Montreal 89.13 7.29 4.19 YES 1 7 21
CM TSE:CM CIBC 60.56 9.50 4.95 YES 1 7 21
NA TSE:NA National Bank 31.39 9.58 3.94 YES 1 7 21

Life Insurance Stocks

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
MFC TSE:MFC Manulife 46.54 5.23 5.41 YES 1 7 55
SLF TSE:SLF Sun Life Financial 36.42 9.77 4.44 YES 1 7 54
GWO TSE:GWO Great West Life 30.28 9.65 6.03 YES 1 7 55
POW TSE:POW Power Corporation 21.80 10.18 5.58 YES 1 7 55

The Best Oligopoly Stocks

That leaves us with 6 industries which is also providing with a decent diversification in order to avoid concentration in one specific industry.

The best telecom stock has to be Telus. I opt for Telus has it has diversified itself away from media content unlike the other players and is almost turning into a high growth tech stock by focusing on underserved markets. In a way, it’s generating cash flow from its telecom business and re-investing in other segments.

The best utility stock with an oligopoly has to be Fortis. Its expansion in the US is what makes me chose it before Emera but it’s a close second.

The best railroad stock can be either of the two option I would say. I have preferred Canadian National Railway for a long time but the recent acquisition of Kansas City Southern by Canadian Pacific could turn the tides. I have preferred Canadian National Railway for the consistency in the end.

The best pipeline stock goes to Enbridge. It is also a regulated utility in Ontario but above all, its existing pipeline is the best way to connect North America to oil. You might not want to invest in a pipeline from an environmental perspective and that’s your choice.

The best bank stock is not the one you think. In fact, it’s the smallest of the big 6 banks and it’s National Bank. However, if you don’t want to go with the smallest, you have to pick between TD Bank which is expending in the US or Royal Bank for its capital market. Start with one but I have all three in my portfolio.

The best insurance stock has to be Sun Life Financial. However, Manulife is the biggest with a lot of exposure in Asia and could rebound. It has has the highest yield depending on how you get setup. If you are really young, go with Sun Life but if you are older, these days I would pick Manulife.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.