The global equity markets have witnessed strong buying since the beginning of October. The lower-than-expected October inflation numbers in the United States appeared to have increased investors’ confidence. However, some of the concerns persist. Yesterday, the Federal Reserve announced that the production at factories in the United States rose by just 0.1% against analysts’ expectations of 0.2%. Further, the central bank lowered the production numbers for August and September.
So, given the uncertain outlook, investors should be careful while buying stocks through their TFSA (tax-free savings account), as capital erosion could lower their TFSA limit. So, given the volatile environment, here are my three top picks for your TFSA.
Fortis
Fortis (TSX:FTS) would be an ideal buy in this uncertain environment due to its solid underlying utility business. Last month, the company reported a healthy third-quarter performance, with its adjusted EPS (earnings per share) growing by 10.9% to $0.71 per share. The rate base growth, favourable rate revisions, and increased retail and transmission revenue drove its earnings during the quarter. These cash boosters generated $633 million in operating cash flows.
Fortis is also progressing with its $4 billion annual capital expenditure program by spending around $2.9 billion by September. Also, management provided a new $22.3 billion five-year capital expenditure program. The new investments could grow its rate base at a CAGR (compounded annual growth rate) of 6.2%. So, its outlook looks healthy.
Meanwhile, management raised its quarterly dividend by 6% to $0.535 per share, representing the 49th consecutive year of a dividend hike. Supported by its balanced capital investment plans, management hopes to raise its dividends by 4–6% annually through 2027. Fortis is available at an 18% discount from its 52-week high, making it an attractive buy at these levels.
Telus
TELUS (TSX:T) is another stock that could be an excellent addition to your TFSA as the demand for telecommunication services continues to rise. In the recently reported Q3 results, revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 10% and 11%, respectively. Telus added around 347,000 new customers, representing year-over-year growth of 8%. The company continued capital expenditures by investing approximately $691 million as of September 30 to expand its fiber and 5G network. The telecom provided 5G service to 80% of Canadians by the end of the third quarter.
Additionally, its other verticals, TELUS International, TELUS Health, and TELUS Agriculture & Consumer Goods have also delivered solid performance during the quarter. Supported by these strong performances, the company generated free cash flows of $331 million for the quarter. Also, management raised its quarterly dividend by 7.2% to $0.3511 per share, with its yield currently at 4.83%. Noteworthy, the TSX stock trades at an attractive NTM (next 12 months) price-to-earnings of 21.4, making it an excellent buy in this uncertain outlook.
Waste Connections
Given the nature of its business and strong quarterly performances, Waste Connections (TSX:WCN) would be my final pick. The waste solutions provider’s services of transferring and disposing of non-dangerous solid wastes are experiencing growing demand. In its September-ending quarter, the waste manager posted revenue and adjusted EBITDA growth of 17.7% and 16.3%, respectively. Growth was driven by solid waste pricing growth, increased exploration and production activities, and contributions from asset acquisitions. So far this year, the company has completed acquisitions that could contribute $535 million to its annual revenue.
Supported by elevated prices and year-to-date acquisitions, WCN’s management expects the 2023 revenue to grow in double digits. The management also raised its quarterly dividend by 10.9% to US$0.255 per share. Meanwhile, WCN’s valuation looks expensive at an NTM price-to-earnings multiple of 34. However, given its solid performance, stable underlying business, and healthy growth prospects, paying a premium for the stock should not be a concern.
