The Canadian equity markets have continued uptrend this year, with the S&P/TSX Composite Index rising 2.2%. Solid quarterly performances from prominent companies, signs of easing inflation, and a resilient economy have raised investors’ sentiments, driving the index higher. However, analysts expect the equity markets to be volatile this year amid the global economic slowdown due to monetary tightening initiatives.
Given the uncertain environment, I believe investors should strengthen their portfolios with the following three top stocks.
Dollarama
Dollarama (TSX:DOL), which offers a wide range of consumer products at attractive prices, is an excellent stock to have in this volatile environment. Although Canada’s inflation declined to 2.9% in January, the core inflation currently stands at 3.2%. So, with higher prices eating into consumers’ pockets, the company could continue to witness healthy footfalls, given its value offerings. The company is also focusing on strengthening its direct sourcing capabilities and improving the efficiency of its logistics to deliver compelling value to its customers.
Further, the Montreal-based discounted retailer has planned to expand its store network to 2,000 by fiscal 2031. Also, its subsidiary, Dollarcity, where Dollarama owns a 50.1% stake, has plans to add 370 more stores in the international markets over the next five years. Dollarama’s quick sales ramp-up and a low average payback period of two years have resulted in higher returns on investments. So, the uptrend in the company’s financials could continue, despite the challenging environment. It has raised its dividend uninterruptedly since 2011, which is encouraging despite lower dividend yield.
Waste Connections
Another stock I am bullish about is Waste Connections (TSX:WCN), which collects, transfers, and disposes of non-hazardous solid wastes in secondary or exclusive markets. Also, it is expanding its footprint across the United States and Canada through strategic acquisitions. Last year, the company completed acquisitions, which could contribute US$215 million to its annual revenue. Further, the company acquired 30 energy waste treatment and disposal facilities from Secure Energy Services earlier this month. So, the company’s management expects acquisitions to contribute around US$325 million to its overall revenue in 2024.
Along with topline growth, the Toronto-based waste management company expects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to grow 13% this year. Also, its adjusted EBITDA margins could expand 120 basis points to 32.7%. Since reporting its fourth-quarter earnings, the company’s stock price has increased by over 8%. Despite the recent surge, I expect the uptrend to continue, given its solid underlying business and healthy growth prospects. The company has also raised its quarterly dividend at an annualized rate of 15% since 2010.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX:PZA) would be my final pick, given its asset-light business model. It operates a highly franchised restaurant business and collects royalty from franchisees based on their sales. So, its financials are less susceptible to rising prices and wage inflation. The company has posted solid same-store sales growth this year amid new product launches, value messaging, and promotional activities.
Further, the company is constructing new restaurants, thus expanding its restaurant network. In January, the company added 45 restaurants to its royalty pool and removed 14 restaurants that ended their operations. It is also renovating its old restaurant. Amid these initiatives, the company could continue to drive its financials in the coming quarters despite the challenging environment.
Pizza Pizza Royalty also pays a monthly dividend with its forward yield currently at 6.53% and trades at an next-12-month price-to-earnings multiple of 15.7, making it an attractive buy.
