After turning bearish in the last two months, the S&P/TSX Composite Index has made a bright start to this month by increasing 6.4%. The hope of the vaccine against COVID-19 and Joe Biden’s victory drove Canadian stocks higher. Amid the increased confidence, here are the three TSX stocks to buy, which can deliver superior returns over the next three years.
Canadian National Railway
Canadian National Railway (TSX:CNR)(NYSE:CNI) is a transportation and logistics company with 20,000 route-miles across Canada and the United States. The company has returned over 20% this year, easily outperforming the broader equity markets.
The company’s top line declined 11% year over year in the September-ending quarter. The lower volumes across its major commodity groups and a decline in applicable fuel surcharge rates dragged its revenue down, partially offset by higher freight rates and increased Canadian grain shipments.
Meanwhile, the company’s revenue ton miles (RTMs) improved throughout the third quarter, while the company RTM in September reported year-over-year growth, indicating a growing demand for certain commodities. Its operating expenses declined 8% due to lower fuel and labour expenses and a decline in purchased services and material expense. The company’s operating ratio increased 200 basis points to 59.9%, which is encouraging.
The company’s management stated that they are cautiously optimistic about the fourth quarter and 2021. The company’s well-diversified revenue base and improving economy could support its financials in the coming years. Further, Biden’s victory could boost free-flowing trade across the United States and Canada border, which could benefit the company.
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NorthWest Healthcare Properties REIT
NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns and operates 190 properties covering 15.4 million square feet across seven countries. The company focuses on healthcare real estate investments, which are highly defensive and are immune to economic downturns.
Yesterday, NorthWest Healthcare Properties REIT reported its third-quarter results. The company’s net operating income increased 34% to $72.2 million, while AFFO (adjusted funds from operations) rose 12.3%. Its occupancy rate remained high at 97.2%, with more than 80% of its revenues generated from direct or indirect public healthcare funding. So, the company’s cash flows are stable. Despite the challenging period, the company collected or formally deferred 97.6% of its revenue. In October, it improved further to 98.1%.
NorthWest Healthcare Properties REIT pays monthly dividends of $0.067 per share at an annualized payout of $0.8. Its forward dividend yield currently stands at 6.8%. So, given its stable cash flows, growth in the asset management platform, and high dividend yield, I am bullish on NorthWest Healthcare Properties REIT.
My third pick would be one of the largest cannabis companies by market capitalization, Canopy Growth (TSX:WEED)(NYSE:CGC), which is up close to 25% for this month. The legalization of cannabis by five states in the U.S. and its impressive second-quarter performance drove its stock price.
New Frontier Data projects the legal cannabis sales in the United States to reach $35 billion from $13.2 billion in 2019 at a CAGR of 18%. With more states legalizing cannabis, more people would move towards legal sales. In 2019, only 17% of the total cannabis sales were legal. Meanwhile, the technology-driven analytics company projects the legal sales contribution to reach 34% by 2025. So, given the enormous growth potential, Canopy Growth is focused on expanding its operations in the United States.
In July, Canopy Growth launched an e-commerce website that sells all its SKUs across its brands. It is also working on launching THC-infused beverages in the summer of 2021 in association with Acreage Holdings. Further, the company has managed to bring its adjusted EBITDA losses down by 43% during its second quarter. The management hopes to report positive EBITDA in fiscal 2022.
So, given its growing addressable market, improving margins, and strong balance sheet, Canopy Growth can deliver superior returns over the next three years.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway and NORTHWEST HEALTHCARE PPTYS REIT UNITS. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.