Despite the rising COVID-19 cases worldwide and a high unemployment rate, the S&P/TSX Composite Index rose 6.6% this month. The hope of the vaccine against COVID-19 and the victory of Joe Biden in the United States presidential elections have boosted the Canadian equity markets. Amid the optimism, here are the three TSX stocks that investors should buy this month for superior returns.
Canopy Growth
My first pick would be Canopy Growth (TSX: WEED)(NYSE:CGC), which is up over 23% for this month. The legalization of cannabis in Arizona, New Jersey, South Dakota, Montana, and Mississippi and its better-than-expected second-quarter performance drove the company’s stock price. Meanwhile, investors’ expectation that Biden’s victory would fasten the cannabis legalization at the federal level has also contributed to its stock price growth.
In the recently announced second-quarter earnings, Canopy Growth’s net revenue grew 77% year over year, driven by a strong performance from Canadian recreational and medical segments and partially offset by a decline in the international medical segment. Compared to the previous quarter, the company expanded its market share in Canada’s recreational market by 200 basis points to 15.5%. The growth in its value, vape, and cannabis-infused beverage segments increased its market share.
More importantly, Canopy Growth lowered its adjusted EBITDA losses by 43% to $85.7 million. Its gross margins improved by 1,400 basis points to 19%, while its SG&A (selling, general, and administrative) expenses fell 19% year over year. Further, the company’s management added that the company is on track to achieve positive EBITDA in fiscal 2022.
Amid the growing addressable markets, expanding market share, and improving margins, I am bullish on Canopy Growth.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB), which is trading 8% higher for this month, is my second pick. The expectation of life and businesses returning to pre-pandemic ways amid the vaccine hope have pushed the oil prices above $42. Higher oil prices led to a rise in the company’s stock price.
Despite the challenges, Enbridge reported an adjusted EBITDA of $3 billion in its recently completed third quarter. However, year over year, it fell 3.6%, mostly due to a decline in its liquid mainline system’s throughput. Its distributable cash flow (DCF) remained strong at $2.1 billion. Further, the management reiterated its previously announced DCF per share guidance of $4.50 to $4.80.
The company continued with its $11 billion secured growth projects, with around $5 billion left to spend by 2022. These projects, along with growth within each business, could generate 5-7% DCF-per-share growth every year until 2022. Further, the company’s management added that it is fully utilizing its liquid mainline, which is encouraging. Along with these growth prospects, the company’s juicy dividend yield of 8.2% makes Enbridge an attractive buy.
TransAlta Renewables
TransAlta Renewables (TSX: RNW) owns and operates 44 power-generating facilities, including renewable and non-renewable power-generating facilities. The company earns 57% of its cash flows from renewable sources. It sells the power produced from these assets through long-term PPAs (power-purchase agreements), which provides stable cash flows for the company.
TransAlta Renewables’s adjusted EBITDA increased by 12% in its third-quarter mainly due to higher contributions from the Canadian wind segment, wind and solar segments of the United States, and the Australian gas segment. However, the decline in EBITDA contribution from the Canadian hydro segment offset some of the growth.
For 2020, the company’s management expects its adjusted EBITDA to be in the range of $445 million to $475 million compared to $438 million in 2019. The company’s PPA has a weighted average contract life of 11 years. Along with its recession-proof business model, the victory of Biden, who is a strong proponent of clean energy, makes me bullish on TransAlta Renewables.
