After rising over 7.3% in the fourth quarter, the S&P/TSX Composite Index has continued its uptrend, climbing 5.8% in the first quarter of this year. Solid quarterly performances and easing inflation appear to have improved investors’ sentiments, driving equity markets higher. However, concerns over global growth amid a prolonged interest rate environment and central banks’ reluctance to lower interest rates sooner are causes of concern.
Given the uncertain outlook, investors should look to add a mix of growth, defensive, and dividend stocks to their portfolios. Meanwhile, here are my three top picks.
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goeasy
goeasy (TSX:GSY) has witnessed solid buying over the last 12 months, with its stock price rising around 70%. Along with the improvement in the broader equity markets, solid quarterly performances drove goeasy’s stock price. In 2023, the subprime lender had around $2.7 billion in loan originations. So, its loan portfolio increased 30% to $3.7 billion. Amid the expansion of the loan portfolio, the company generated $1.3 billion of revenue, 23% higher than the previous year.
Supported by stable credit and payment performance, goeasy’s net charge-off rate stood at 8.9% compared to 9.1% in the previous year, while provision for future credit losses declined to 7.28%. While its efficiency rate, which measures the company’s ability to control its overhead costs, improved 340 basis points to 30.2% this year.
Further, goeasy is developing innovative products, strengthening its digital infrastructure, and adding new distribution channels to expand its loan portfolio and drive efficiency and profitability. Meanwhile, the company’s management projects its loan portfolio to grow by 65% from current levels to reach $6 billion (the midpoint of its guidance) by 2026. Revenue could grow at an annualized rate of 12.9% over the next three years. Also, its operating margin could improve from 38.1% in 2023 to 41% by 2026. So, its growth prospects look healthy.
goeasy also pays quarterly dividends and has increased its dividends for the previous 10 years, with its forward yield currently at 2.94%. Besides, GSY’s valuation looks cheap, with its NTM (next 12 months) price-to-earnings multiple at 9.5. Considering all these factors, I am bullish on goeasy.
Waste Connections
Waste Connections (TSX:WCN) is a defensive stock that collects, transfers, and disposes non-hazardous solid wastes. It operates in secondary and exclusive markets in the United States and Canada, thus facing less competition and enjoying higher margins. Last year, the company’s revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 11.2% and 13.6%, respectively. Besides, its adjusted EBITDA margin expanded by 70 basis points to 31.5%.
Last year, Waste Connections made several acquisitions that can contribute $215 million to its annualized revenue. Continuing its acquisitions, the company acquired 30 energy waste treatment and disposal facilities from Secure Energy Services in February. Besides, its investments in expanding Renewable Natural Gas (RNG) and resource recovery facilities could boost its financials in the coming quarters. Meanwhile, management projects its 2024 revenue and adjusted EBITDA to grow by 9.1% and 13%, respectively. It hopes to expand its adjusted EBITDA margin by 120 basis points to 32.7%. Given its solid underlying business and healthy growth prospects, Waste Connections would be an excellent buy.
Enbridge
I have selected Enbridge (TSX:ENB), which has been paying dividends for 69 years, as my final pick. The midstream energy company transfers oil and natural gas across North America through its pipeline network. It has signed long-term contracts with its clients, which stabilizes its financials. Besides, its inflation-indexed contracts protect its financials from rising expenses, generating healthy cash flows. Notably, the company has increased its dividends for 29 consecutive years, with its forward yield currently at 7.48%.
Further, Enbridge is expanding its footprint in the natural gas utility business by acquiring East Ohio Gas Company. Additionally, the company is acquiring two other natural gas utility assets in the United States, which could make it the largest natural gas utility company in North America. Along with these acquisitions, the company continues to expand its midstream energy business and hopes to put $8 billion of capital into service by the end of next year. Given its solid underlying buYsiness, healthy growth prospects, and solid financial position, Enbridge would be another worthwhile addition to your portfolio.
