Avoiding REITs Right Now? Buy These Stocks Instead

This is a tough market to navigate for that risk-to-ratio balance. Investors may find it easier to stick to purely defensive asset types. There is certainly nothing wrong with that strategy. Indeed, the buy-and-hold income investor has little to fear from a basket of utilities, precious metals, and supply chain stocks. But for capital gains investors, the waters are somewhat more treacherous.

The pandemic couldn’t have come at a less-certain time as far as REITs are concerned. Slate Office REIT has lost 39% in 12 months. American Hotel Income Properties REIT is down 59% year on year. There are hidden risks, too, besides the pandemic. Election years are always frothy, but 2020 takes the cake. In a fractured American political landscape, every possible outcome carries its own set of risks.

But there could be potential benefits, too, such as a redrawn USMCA — especially for Canadian metal and forest product producers. Indeed, investors could see a significant boost to key names in the building materials and construction field heading into 2021. Let’s examine some of the reasons why construction could be about to kick off.

How to buy stocks for a building boom

Three factors could turn the Canadian forest product industry around. A building boom could be imminent — for instance, as part of economic recovery efforts. As suggested, a U.S. Democrat win might also work in favour of Canadian materials. Additionally, construction investors could capitalize long term on the strong momentum-generation potential of disruptive “climigration” —the physical movement of a populace, as forced by climatic change.

Canadians bullish on a building spree should keep an eye on lumber stocks. There are several strong names to choose from. Names such as Norbord, West Fraser Timber, and Canfor represent some of the best forest product businesses in the country. A change of faces in the White House could see a softening of the past few years’ protectionism — including better trading conditions for Canadian materials.

Infrastructure stocks could also see a boost if the Canadian construction sector is emphasized during the dual healthcare/economic recovery process. Stocks such as SNC-Lavelin, GFL Environmental, and Finning International are among the highest-profile names to consider buying. By mixing well-established names like Finning with rising stars like Norbord, investors can cream some significant upside.

From sawmills to whipsawing markets

Playing the materials space during the upcoming election will require a combination of timing and luck. But there’s a current affairs angle, too. Canadians keeping an eye on the U.S. election might expect some early market turbulence next month. This could be generated by Joe Biden’s presumptive VP pick. TSX investors may therefore want to pencil in August 1 for a possible pullback in the markets.

Identifying these kinds of market stressors ahead of time allows investors to time their purchases. For instance, given the fractured U.S. political scene, the markets are likely to disapprove of just about every VP pick. However, a Democrat win could see Canadian materials rise on hopes that 2021 consigns protectionism to the history books. In short, expect turbulence but watch for opportunities.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends FINNING INTL.

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