After a solid first quarter, Canadian equity markets have turned volatile this month. The concerns over geopolitical tensions and expectations of a global slowdown amid a prolonged high interest rate environment have weighed on investors’ sentiments, thus dragging the equity markets down. Meanwhile, the United States Bureau of Economic Analysis announced yesterday that the United States GDP (gross domestic product) grew by 1.6% in the first quarter, which was lower than analysts’ expectations of 2.4%.
Given the softer GDP numbers, I expect the global equity markets to remain volatile in the coming months. So, investors should add quality TSX stocks to strengthen their portfolios in this uncertain outlook. Meanwhile, here are my three top picks.
Dollarama
Dollarama (TSX:DOL) is a Canadian discount retailer operating over 2,000 stores across Canada. The Montreal-based company offers an extensive range of products at attractive prices through its direct sourcing and efficient logistics. So, it has witnessed healthy same-store sales, even during a challenging macro environment. Meanwhile, the company has grown its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) at an annualized rate of 11.5% and 17.3% since fiscal 2011. The adjusted EBITDA margin has expanded from 16.5% in fiscal 2011 to 31.4% in fiscal 2024.
Meanwhile, Dollarama has planned to increase its store count from 1,551 at the end of fiscal 2024 to 2,000 stores by fiscal 2031. Given its quick sales ramp-up and an average payback period of less than two years, these expansion initiatives could boost the company’s financials in the coming years. The company’s subsidiary, Dollarcity, where Dollarama has a 50.1% stake, has planned to increase its store count by 318 to 850 by 2029. Adding new stores could increase Dollarcity’s financials, thus raising its contribution towards Dollarama. So, Dollarama’s growth prospects look healthy, making it an excellent buy despite the uncertain outlook.
goeasy
goeasy (TSX:GSY) is another top stock to have in your portfolio, given its solid historical performances and healthy growth prospects. The subprime lender has grown its top line and diluted EPS (earnings per share) at a CAGR (compound annual growth rate) of 19.8% and 31.9% over the last five years. Supported by these solid performances, goeasy has returned 331% in the previous five years at an annualized rate of 34%. Despite solid returns, the company trades at two times its projected sales and 10.5% times its projected earnings for the next four quarters.
Further, goeasy focuses on launching new product offerings, adding new delivery channels, and strengthening its digital infrastructure to drive growth. Amid growing credit demand, the company’s management expects to expand its loan portfolio by 65% from its 2023 level to $6 billion by 2026. The loan portfolio expansion could grow its topline at an annualized rate of 12.9% while improving its operating margin from 38.1% in 2023 to 41% by 2026. It pays quarterly dividends, with its forward yield currently at 2.66%.
Suncor Energy
The extension of production cuts by OPEC (Organization of the Petroleum Exporting Countries) and its allies and the Middle East tensions have raised supply concerns, driving oil prices higher. Year to date, Brent crude has increased by 13.3%. Analysts predict oil prices will remain elevated in the near term and fear that the worsening of the current situation in the Middle East could drive Brent Crude to cross US$100/barrel.
Higher oil prices could benefit oil-producing companies like Suncor Energy (TSX:SU), trading 28.4% higher this year. Despite the surge, the company trades at an attractive valuation, with its NTM (next-12-month) price-to-earnings and NTM price-to-sales multiples at 10 and 1.4, respectively. Further, the Calgary-based energy company strengthened its production capabilities by acquiring the remaining 45.9% stake in Fort Hills for $2.2 billion in the fourth quarter.
The company has planned to invest around $6.3 billion to $6.5 billion this year, which could boost its production. Aided by higher production and elevated prices, I expect Suncor Energy to continue posting solid financials in the coming quarters. Also, Suncor Energy offers an attractive dividend yield of 4%, making it an excellent buy.
