Investors often overlook the best Canadian stocks, opting for domestic, American firms instead. The non-resident withholding tax is a big reason to avoid stocks in this country. US-based investors may buy Canadian stocks in their IRA to avoid the tax. In addition, financial institutions and energy companies are the main appeals for Canadian companies. In the speculative segment, cannabis companies are disappointed.
Investors who missed the boom in cannabis stocks and bought near the top will shy away from Canadian stocks. Astute investors will dig deeper and find many diamonds in the rough. These include insurance, technology, financial, retail, and energy stocks.
Growth and value scores for these stocks in green are strong.
In the table above, the seven best companies in the country have a quality score as high as 89/100. Suncor Energy is a quality oil and gas firm. At the lower end is George Weston with a 64/100 on quality.
Yet its value score of 87/100 more than makes up for its lower return on investment in the food processing and distribution business.
The strong U.S. dollar may deter investors from exchange rate risks. Expectations of high oil prices will increase demand for Canadian energy. Below are seven Canadian stocks to buy:
|CP||Canadian Pacific Railway||$73.25|
Canadian Pacific Railway (CP)
Canadian Pacific Railway (NYSE:CP) is a railway firm whose stock trended lower. For the week ending June 30, 2022, U.S. weekly rail traffic fell by 4.4%. Demand for commodities like coal hurt rail traffic.
In the last quarter, CP pointed to lower grain volumes hurting revenue. Last year’s drought in Canada resulted in a 40% smaller crop. The company expects continued headwinds through the back half of this year. When crop volumes normalize this fall, CP’s grain shipments will rebound.
Looking ahead, CP’s costs are comparable to that of last year. Train length is at or above last year’s levels. Expect operating costs to remain steady. This will lead to margin improvements in the coming quarters and higher performance numbers.
In Ukraine, Russia’s invasion disrupted world exports coming out of the Black Sea region. This will drive demand for Canadian wheat, grain, potash, and other products. Profits will rise steadily, justifying an uptrend for CP stock from here.
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Dollarama (OTCMKTS:DLMAF) is a Canadian dollar store retail chain. In the first quarter report posted on June 8, 2022, the company posted strong net earnings and sales growth.
Dollarama reported net earnings per share of 49 cents, up by 32.4% year-over-year. EBITDA increased by 20.9% YOY to $300 million. Sales increased by 12.4% to $1.07 billion. Despite the strong results, President and Chief Executive Officer Neil Rossy said that the company has room for improvement. For example, its inventories are not in a perfect position. It will improve its product mix to increase inventory turnover and increase operating margins.
New product introductions will come in at a higher price point. This risks hurting customer traffic. Still, Dollarama will continue to offer most products at lower price points. There, customers will perceive getting the best value.
Patient investors may wait for the company to post second-quarter results. It will give investors a better indication of product availability and the impact of inflation on product demand. On Wall Street, the average price target is $61.27 (per Tipranks).
George Weston (WNGRF)
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Late last year, George Weston started to focus on its retail and real estate business. It started the process of selling its Weston Foods business. It sold the fresh and frozen portion of Weston Foods in October 2021. This added around $1.57 billion to its balance sheet. More importantly, it could use the proceeds to buy back shares, increasing shareholder value.
George Weston has a good history of reporting strong financial performance. Loblaw and Choice Properties are the main drivers of its revenue growth. Loblaw, for example, raised last year’s EPS outlook for 2021. Choice Properties has a stable portfolio of real estate. The collection rate is nearly 100%. Investors get the best of both worlds — a REIT and food distribution — in one company.
The gradual return to work throughout 2022 will increase consumer demand for beauty and cosmetics products. These are higher-margin goods. Furthermore, traffic to the company’s pharmacy will increase same-store sales.
Intact Financial (IFCZF)
Intact expects to pursue many growth opportunities despite the weakening economic environment. For example, it will add new products and create a presence in parts of the United Kingdom. Intact also has organic growth opportunities. Its ability to cut costs and increase sales per customer is typical of any insurance firm.
Intact did not see any major cost increases in the last quarter. Costs from injuries, theft, and car repairs are comparable to year-ago periods. In addition, the main indicators of inflation did not show up. Once the supply chain recovers, the availability of OEM parts should lead to lower repair costs.
Crime rates could rise as the economy worsens. Intact will offset repair costs by initiating new underwriting actions. For example, it will pay for the installation of tracking devices for high-risk vehicles in a target area.
Manulife Financial (MFC)
Manulife Financial (NYSE:MFC) raised CA $1 billion on Jan. 16, 2022. The notes will pay 7.117% in interest. This increases its financial flexibility as interest rates rise. It will use the proceeds to invest in subsidiaries and redeem securities in the future.
Manulife is willing to pay a generous rate because the credit conditions are tightening. Within a few months, those rates will look like a bargain.
The insurance firm expects expenses to rise in this inflationary environment. It will focus on expense efficiency. This includes implementing automation and digitization. In the first quarter, Manulife managed to keep core expense growth flat. As inflation increases, Manulife’s cost-saving programs will sustain its operating margin levels.
Manulife has a strong asset portfolio. Investors should expect its private equity valuations to rise. This represents around 25% of all portfolios. It has 75% in real assets, which include oil and gas, agriculture, timber, and real estate. With those assets, higher inflation will raise the value of its overall portfolio.
Open Text (OTEX)
Customers need enterprise resource planning and customer relationship management solutions. This helps clients connect with their stakeholders, increasing operating efficiency.
The company explained its digital fabric in this platform overview.
The company has several strategic priorities. First, it will transition its customers to the cloud. Second, it will offer cloud additions to clients. Most of its new customers will start directly on the Open Text cloud.
The company wants more customers on the cloud because it increases its operating margins. In addition, customers will enjoy higher satisfaction levels. As their usage increases, Open Text may cross-sell several modules. This would increase its average revenue per customer.
Expanding to new markets is the company’s third priority. It wants 10,000 global customers in the next two years.
Suncor Energy (SU)
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Suncor Energy (NYSE:SU) is a leading oil sand producer. It has the best downstream business in North America, according to CEO Mark Little. It invested in its operations and increased staff safety. This will result in higher profitability in the years ahead.
Suncor has a $1.7 billion cost reduction target. Throughout 2022, the company will report lower-cost exposure. In 2023 and 2024, the cost cuts will accelerate. Investors will notice profit margins rising in that time.
In the downstream business, Suncor’s New York Harbor is a strong asset. It benefits from a very strong wholesale business. Furthermore, the distillate business remains strong. In the first quarter, the company posted non-GAAP earnings per share of CA $1.92. Revenue grew by 56.3% YOY to CA $13.5 billion.
Suncor raised its dividend by 12% quarterly to CA 48 cents. This is the company’s highest quarterly dividend per share in its history. Furthermore, it will increase shareholder returns by buying back up to 10% of shares.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.