Rising interest rates are headwinds for stocks, although some companies can weather the impact better than others. If you want to play smart, three stocks can strengthen your portfolio.
The National Bank of Canada (TSX:NA) continues to outperform in the wake of rapidly rising rates. In the consumer staples sector, Alimentation Couche-Tard (TSX:ATD) and Rogers Sugar (TSX:RSI) have market-beating returns thus far in 2023.
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Strong capital and liquidity positions
Canada’s Big Six banks are bedrocks of stability. National Bank (+9.94% year to date) is the sixth-largest, yet the stock outperforms its larger peers. At $98.21 per share, you can feast on the 4.15% dividend yield.
On June 8, 2023, the $33.2 billion bank increased its Canadian prime rate by 25 basis points to 6.95%, but it didn’t affect the stock. The bank’s analysts said the central bank resumed its rate hike campaign last month after a four-month pause due to Canada’s resilient economy.
Because of slower economic growth, NA believes profitability is the challenge for firms in the coming quarters. In the first half of fiscal 2023 (six months that ended April 30, 2023), NA’s net income declined 5% to $1.7 billion versus the same period in fiscal 2022.
In Q2 fiscal 2023, the year-over-year drop in net income is also 5% (down to $847 million). The bank also announced a 5% increase in regular dividends despite increasing the provision for credit losses (PCLs) from $3 million to $85 million.
Still, its President and CEO, Laurent Ferreira, said that besides the adequate PCLs, NA has strong capital and liquidity positions to support profitable growth and navigate the uncertainty ahead.
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Rising profits
Couche-Tard is a safe bet for risk-averse and long-term investors. In fiscal 2023, total revenues and net earnings rose 14.4% and 15.2% year over year to US$71.8 billion and US$3.1 billion. The $63.8 billion convenience store giant enjoys rising profits amid rising interest rates. Its global network is also expanding with continuous acquisitions.
Its CEO, Brian Hannasch, said Couche-Tard’s balance sheet is robust, and more deals are ahead. While the primary focus is North America, the company is open to pursuing opportunities in South America and Asia. In Q4 fiscal 2023, Couche-Tard acquired 2,193 sites in Belgium, Germany, Luxembourg, and the Netherlands.
If you invest today, the share price is $65.26 (+10.2% year to date), while the dividend yield is 0.86%.
Favourable sugar dynamics
Rogers Sugar is a winner because sugar is a staple and an everyday need. The $603.9 million company’s high profitability in Q2 fiscal 2023 is due to sugar’s strong performance. The net earnings during the quarters climbed 29.1% year over year to $11 million.
Its President and CEO, Mike Walton, said, “Canada’s favourable sugar dynamics and continued strong demand for sugar-containing products drove increased profitability in the second quarter of fiscal 2023.” He expects the trend to sustain for the rest of the year and help produce stable financial results.
The consumer staple stock is outperforming the TSX year to date, up 4.4% versus 2.3%. Also, at only $5.76 per share, the dividend offer is 6.22%.
Solid picks
I would prioritize investing in the National Bank of Canada if I had free cash in 2023. Assuming I have more funds, Alimentation Couche-Tard and Rogers Sugar would be my backup stocks.
