3 TSX Stocks That Could Rally on Solid Q2 Earnings Next Week

TSX stocks might continue their upward climb, at least for the next few months, if earnings growth indeed falls on the expected lines.

| More on:

Markets have shrugged off inflation and the Delta COVID variant fears recently. Rather, investors seem confident about the quarterly earnings recovery and the impending economic growth. Thus, stocks might continue their upward climb, at least for the next few months, if earnings growth indeed falls on the expected lines. Here are three top TSX stocks that could rally, given their expected handsome Q2 2021 performance.

Tourmaline Oil

Canada’s largest natural gas producer, Tourmaline Oil (TSX:TOU), has been on the solid run this year. The stock has already doubled this year due to higher energy commodity prices and superior earnings growth. Tourmaline plans to report its second-quarter earnings on July 28.

Tourmaline Oil reported higher production and improved free cash flows in the last quarter. A major chunk of this free cash was distributed among shareholders in the form of higher dividends. The trend will likely continue in Q2 2021 as well, driven by the strength in oil and gas prices and higher demand.

The company posted a handsome gross profit margin improvement in the last few quarters. Scale and engineering design changes led to increased operational efficiency, which pushed its gross margin to 66% from a long-term average of 58%.

After doubling in 2021, TOU stock is still trading at a price-to-earnings valuation of 11. That indicates an attractive investment proposition for long-term investors.

Equitable Group

Equitable Group (TSX:EQB) operates through its wholly owned subsidiary Equitable Bank. It has returned 95% since last year, notably outperforming the Big Six Canadian bank stocks. It will report Q2 2021 earnings on July 29.

Equitable Group serves a large customer base that Big Six Canadian banks do not usually serve. It saw significant growth in the last quarter and issued an upbeat outlook for 2021. It might report continued growth in both commercial and personal banking during Q2.

At the end of Q1 2021, it had $108 million, or $6.37 per share of excess capital. As a result, EQB could reward its shareholders with higher dividends with this excess cash.

Interestingly, EQB stock is trading at a discounted valuation against the industry average, despite its steep rally. A strong performance in Q2 and attractive valuation could drive EQB stock higher in 2021.

Canadian Pacific Railway

Canadian Pacific Railway (TSX:CP)(NYSE:CP), Canada’s second-biggest railroad company, will report its Q2 earnings on July 28. The numbers will likely improve, considering economic reopenings this year.

Also, commodity prices have been substantially higher this year due to superior demand. So, higher exports of commodities, like lumber and crude oil, will likely boost CP’s top line during the quarter. Canadian National Railway, which reported its numbers on July 20, saw remarkable earnings growth driven by commodities.

Canadian Pacific lags CNR in terms of market share in a duopolistic railroad market. However, CP sports a unique network and significantly contributes to North American trade. Moreover, CP stock grew faster than CNR, mainly due to the latter’s superior earnings growth in the last decade.

Notably, CP stock is also trading at a discount against CNR. It could change course after its Q2 2021 earnings next week. CP remains a solid long-term bet driven by its diversified revenue base and stable earnings.

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.

The Motley Fool recommends Canadian National Railway. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. 

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »