Although the Canadian equity markets have turned volatile over the last few days, the S&P/TSX Composite Index is up 15.6% this year. Easing inflation, the central bank’s interest rate cuts, and solid earnings have boosted stock prices. Meanwhile, the following two Canadian stocks have outperformed the broader equity markets this year and could maintain their uptrend, given their solid underlying businesses and healthy growth prospects. So, investors with longer investment horizons can buy these stocks despite their recent rally.
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Celestica
Celestica (TSX:CLS), which offers innovative supply chain solutions globally, is one of the top performers this year, with returns of 159.2%. Its solid performance in the first three quarters, raising of 2024 guidance, and healthy 2025 guidance appear to have raised investors’ confidence, driving its stock price. The solid performance from its Connectivity & Cloud Solutions segment, which posted 43.8% revenue growth during the first nine months, drove its top line. However, its Advanced Technology Solutions segment witnessed a 6.6% decline, offsetting some of its growth.
Supported by topline growth, a decline in SG&A (selling, general, and administrative) expenses as a percentage of total revenue, and share repurchases, Celestica posted an 85% increase in its diluted EPS (earnings per share). After reporting a solid third-quarter performance, the company’s management has raised its 2024 guidance. The new guidance represents a 20.6% increase in its topline, while its adjusted EPS could increase by 58.4%. Besides, the company could generate a healthy adjusted free cash flow of $275 million, a year-over-year increase of 42%.
Moreover, Celestica has entered into a strategic partnership with Groq, which has developed the Language Processing Unit, a proprietary silicon platform specializing in accelerated inferencing. The partnership would support the manufacturing of AI (artificial intelligence)/machine learning servers and full-rack solutions. Given its exposure to high-growth AI/ML computing products, I expect the company’s financial uptrend to continue.
Dollarama
Second on my list would be Dollarama (TSX:DOL), which has returned 57.5% this year. Amid the challenging macro environment, the company’s value offerings attracted customers as they looked to utilize their discretionary spending prudently. In the first two quarters of fiscal 2025, which ended on July 28, the company posted same-store sales growth of 5.1%. The company has also added 58 stores over the last four quarters, boosting its topline. Meanwhile, the retailer’s top line grew by 8%, while its EBITDA margin expanded from 29.9% to 31.7%. Its diluted EPS grew by 20.1% to $1.79.
Meanwhile, Dollarama has planned to expand its store count from 1,583 to 2,000 by the end of fiscal 2031. Given its cost-effective growth-oriented business model, lean operations, and a lower payback period, the expansion of its store network could boost its top and bottom lines. Further, the company has a strong presence in Latin America, with a 60.1% stake in Dollarcity. It also owns an option to buy an additional 9.9% stake in Dollarcity by the end of 2027. Dollarcity also plans to open 480 more stores in the coming six years to increase its store count to 1,050 by the end of 2031. The increase in store count and higher stake could increase Dollarcity’s contribution towards Dollarama.
Besides, Dollarama pays a quarterly dividend, with its forward yield currently at 0.25%. Although its dividend yield is lower, investors can benefit from its consistent dividend growth, with the company raising 13 times since 2011. Considering all these factors, I believe Dollarama offers an excellent buying opportunity for long-term investors despite the substantial gains in its stock price.
