The equity markets are under pressure this year due to high inflation, rising interest rates, and geopolitical tensions. Meanwhile, the recent survey of economists conducted by The Wall Street Journal showed a 63% probability of recession over the next 12 months compared to 49% in July. So, given the uncertain outlook, investors should look to add companies that are less susceptible to economic fluctuations to their portfolios. Meanwhile, here are my three top picks.
Dollarama
Despite the volatile environment, Dollarama (TSX: DOL) has delivered an impressive 26.8% this year, outperforming the broader equity markets. Rising inflation is eating into consumers’ pockets, which has forced them to look for cheaper products. This transition has benefited the company, which operates discount retail stores. The company’s same-store sales grew by 13.2% in the recently reported third quarter. Supported by its solid same-store sales and net addition of 63 new stores over the last 12 months, the company’s revenue has increased by 18.2%. Also, its EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 25.9% to $369.4 million.
Meanwhile, I expect the uptrend in Dollarama’s financials to continue, as its unique value proposition could continue to attract customers in this inflationary environment.
The company is looking at expanding its presence in Latin America. It also expects to add over 550 stores over the next nine years to increase its store count to 2,000 by 2031. Despite its impressive returns, the company currently trades at an NTM (next 12-month) price-to-earnings multiple of 27.5. So, considering all these factors, I am bullish on Dollarama.
Canadian Utilities
The demand for electricity, water, and natural gas remain stable irrespective of the economic outlook. So, I have selected Canadian Utilities (TSX: CU), which is involved in the generation, transmission, and distribution of electricity and natural gas, as my second pick. Despite the volatile environment, the company has continued to deliver stable financials, with its adjusted net income growing at 9.5% to $335 million in the first six months of this year.
During the second quarter, it invested around $294 million, with around 83% in regulated utilities and the remaining 17% in energy infrastructure. It is working on acquiring a portfolio of wind and solar power-generating facilities across Alberta and Ontario for $730 million. Meanwhile, the company’s management expects to close the deal in the first quarter of 2023. So, the company’s growth prospects look healthy.
Canadian Utilities has a solid track record of raising its dividend. It has increased its dividend for the last 50 years, while its forward yield stands at a juicy 5.1%.
Telus
Access to internet services is becoming essential in this digitally connected world. So, I have selected Telus (TSX: T), one of the three top Canadian telecom players, as my third pick. Amid the favourable environment, the company is progressing with its accelerated capital-investment program, expanding its 5G and broadband infrastructure. These investments could drive its financials in the coming quarters.
The recent acquisition of LifeWorks for $2.3 billion has expanded its telehealthcare business. Also, its other technology-oriented verticals, such as TELUS International and TELUS Agriculture & Consumer Goods, are growing at an impressive rate.
Despite its healthy growth prospects and stable cash flows due to recurring sources of income, Telus trades at an attractive NTM price-to-earnings multiple of 20.6. Also, its dividend yield stands at a juicy 4.9%, making Telus an attractive buy at these levels.
