Even though there are concerns related to increased inflation and higher interest rates, Canadian economy was able to perform better than anticipated in 2023, with expected growth of ~1.1%. This growth, which was marginally below economy’s 2% potential, surpassed the initial projections.
Why are Investors buying Canadian stocks?
There were actually number of factors which continues to support overall Canadian economy. Strong population growth supported demand, helping labor market, and creation of ~430,000 jobs between January and November 2023. Therefore, Canadian stocks which investors are buying right now are the ones which have strong growth outlook, healthy balance sheets and favourable economic dynamics.
With healthy economic indicators, what’s going on with Bank of Canada? Well, the bank responded to economy’s resilience through increasing key rates by 75 basis points to reach at ~5.0%. However, growth remained uneven in 2023, mainly in interest rate-sensitive sectors such as housing, that saw significant slowdowns.
Inflation in Canada was stable at ~2% annually over past 30 years, contrasting with ~8% and ~13% levels which were seen in 1970s and 1980s. Even though there are experts anticipating a decline in inflation, touching a stable 2% inflation rate is not expected till 2024 end. Therefore, Canadian stocks which investors are buying right now are expected to benefit once inflationary concerns and macro-economic tensions reduce.
Deloitte expects that inflation should return to target level by mid-2025. Bank of Canada is expected to start rate cuts once road to achieving 2% target is visible. This is expected in spring of 2024, and therefore, a rebound is expected in latter part of 2024.
Subsequently, experts believe that there can be acceleration in real economic growth, and they project an average growth rate of ~0.4% for 2024. Strong growth momentum is expected to persist in 2025, with overall economy seeing ~3% growth, with higher consumer spending and exports benefitting from opening up of LNG Canada export terminal in BC.
With this in mind, we will now have a look at Canadian stocks which investors are buying right now.
Top 3 Canadian stocks investors buying right now
1. Franco-Nevada Corporation
The company is a precious-metals-focused royalty and investment company.
It has increased its quarterly dividend and declared quarterly dividend of US$0.36 per share which is payable on March 28, 2024 to shareholders on record as on March 14, 2024. This increased dividend is expected to be effective for full 2024 fiscal year. This exhibits a 5.88% rise from prior US$0.34 per share quarterly dividend. With this, the company saw 17th consecutive annual increase for Franco-Nevada shareholders.
It has released its 3Q23 results, and its core precious metal assets supported the quarter, leading to higher revenue and earnings over previous-year period. The company is debt-free and continues to grow its cash balances.
Its strong balance sheet is being supported healthy balance sheet and generation of $236.0 million in operating cash flow during 3Q. It has strong pipeline of precious metal and diversified opportunities. In 3Q23, the company saw $309.5 million in revenue, exhibiting a rise of 1.7% from 3Q22. It benefited from rise in GEOs from its Precious Metal assets and increased gold prices.
Precious Metal revenue made up for ~77.8% of its revenue (64.5% gold, 10.2% silver, 3.1% PGM). Revenue of 88.0% was from Americas, 28.7% from South America, and 28.4% from Central America & Mexico. However, ~15.9% was from the U.S. and 15.0% was sourced from Canada.
2. Bausch Health Companies Inc.
The company develops, manufactures, and markets numerous pharmaceutical medical device and OTC products mainly in therapeutic areas of eye health gastroenterology and dermatology.
It saw 4Q revenues of $2.41 billion, exhibiting a rise of 10% on a reported basis. This was up by 4% on an organic basis. FY23 revenues of the company came in at $8.76 billion, exhibiting an increase of 8% on reported basis and 7% on organic basis.
During FY23, the company advanced its growth strategies it saw strong performances throughout each of its business segments and it continued to focus on its balance sheet and liquidity. The company made strong progress on its critical R&D initiatives. Together, all these factors should help the company in seeing continued growth and performance.
The company is expected to continue to prioritize advancing its pipeline, investing in initiatives to support growth, and positioning it for long-term success.
Consolidated operating income of the company came in at $362 million for 4Q23 in comparison to operating loss of $236 million for 4Q22, exhibiting a rise of $598 million. This exhibits increased goodwill impairment charges in 4Q22 against 4Q23.
It saw $390 million of cash from operating activities in 4Q23 and $1,032 million for FY23 in comparison to generating $475 million in 4Q and using $728 million for FY22. Higher cash flow from operations of $1,760 million for FY was mainly because of changes in business performance and effect in 2022 of reductions of restricted cash as some of the litigation settlements became final and unappealable.
4. Canadian National Railway Company
The company’s railway spans Canada from coast to coast and it extends through Chicago to Gulf of Mexico.
The company has released its financial and operating results for 4Q and year ended December 31, 2023. For 4Q, it delivered diluted earnings per share of C$3.29, exhibiting a rise of 57% and adjusted diluted EPS of C$2.02, a decline of 4%.
In 4Q23, its revenues came in at C$4,471 million, exhibiting a decline of C$71 million or 2% on year-over-year basis. Operating income of the company was C$1,818 million, which exhibits a decline of C$94 million, or 5%.
Conclusion
While above are some of the Canadian stocks which investors are buying right now, there are several other stocks from different industries which are expected to perform well as a result of overall growth in Canadian economy.
Even though the Canadian economy appear to be tough right now, investors can bet on some Canadian stocks now and can get strong returns over the long term.