Stock picking is not an easy task. The year 2023 looks even more uncertain to bet on risky assets like stocks. Macroeconomic challenges look set to fuel volatility in broader markets and pinch investors. However, there are some names that will likely remain resilient and could outperform in the long term. Here are two such TSX stocks that look attractive at current levels.
Canadian Natural Resources
Investors perceived energy stocks as some of the risky bets in the markets a few years back. But that has changed since the pandemic as the balance sheets almost across the sector have notably improved. One name that is particularly attractive is Canada’s biggest energy producer Canadian Natural Resources (TSX:CNQ). It is an attractive bet, given its stellar financial growth, stable dividend profile, and record-low leverage.
CNQ stock has returned 300% in the last three years, outperforming Canadian energy bigwigs. Apart from strong capital gain prospects, it offers reliable dividends, which are more precious in uncertain times. It currently yields 4.5%, higher than TSX stocks at large. CNQ has increased its shareholder payouts for the last 23 consecutive years. Notably, the payouts have grown by 21% compounded annually — quite a feat for CNQ, despite being in such a risky industry.
CNQ has a diversified product base that it sells in premium export markets. For example, 40% of its oil production receives higher benchmark prices than the local Western Canadian Select. These higher realized prices help boost the top line and improve margins.
For 2023, CNQ management has announced that it will allocate 100% of its free cash flows for shareholder dividends. So, we might see buybacks and dividends delight shareholders.
CNQ stock stands tall compared to its peers due to its scale and balance sheet strength. It will likely keep paying higher dividends and create handsome value in the long term.
Dollarama
Canadian discount retailer Dollarama (TSX:DOL) is an appealing stock for your all-weather portfolio. It gains steam, as the uncertainty in the broader markets increases. Last year, DOL stock returned 25% as inflation and rate-hike worries dented broader markets.
Dollarama operates 1,461 stores in Canada — way higher than its peer retailers. This geographical expanse is one of its key competitive advantages and plays out well for its top-line growth. Its revenues have grown by 10% and net income has grown by 14%, compounded annually in the last decade. Apart from financial growth, its margin stability through all the business cycles has been quite noteworthy.
Broader markets witnessed a margin squeeze amid the inflationary environment last year. However, Dollarama’s strong execution made it pretty resilient to those macroeconomic challenges and drove margins higher.
DOL stock is trading 30 times its 2023 earnings and looks stretched from a valuation standpoint. However, its superior financial growth and potential to outperform in all kinds of markets justify its premium valuation. The stock will likely trend higher, as markets again move from high-risk assets to defensives.
