The economy has clearly stalled. Canada’s Gross Domestic Product (GDP) growth was just 0.7% year over year in the last quarter of 2022. Adjusted for inflation, it’s practically negative. A similar pattern is playing out in the stock market. The S&P/ TSX Composite Index is down 10.4% over the past 12 months.
Tech stocks were already down but now energy and bank stocks are sliding too. It’s safe to say the national economy is stumbling. But that doesn’t mean all assets are doomed. Instead, some stocks thrive, even if the rest of the economy is going sideways. Here are the top three stocks to invest in 2023.
Discount retailers do well in any economic climate. However, consumers turn to low-cost retailers especially in times of economic distress. Over the past year Dollarama (TSX:DOL) has seen its sales surge, as Canadians grappled with historic inflation and higher interest rates.
Dollarama is the largest dollar store operator in Canada with a growing presence in foreign countries. Until recently, most of its products were priced around $1 or $2. Now they’re priced up to $5. That price hike has kept the company ahead of the inflation curve. Sales rose 14.9% in the most recent quarter, while the stock is up 14.4% over the past year.
Dollarama could keep growing, even if the economy stagnates.
Alimentation Couche-Tard’s (TSX:ATD) mundane business model and financial discipline makes it a top pick for investors worried about a stagnant economy. The company owns and operates 14,300 convenience stores across 24 countries, most of which are located in high-traffic areas. That means its sales are linked to the ebb and flow of global driving patterns.
Until recently, the company was accumulating more cash than it knew what to do with. The dividend yield was under 10% while management was patiently seeking an acquisition target. Many of its potential deals fell apart in recent years, but the team has finally agreed to buy 2,193 gas stations across Germany and the Netherlands from TotalEnergies.
This recent acquisition should boost the company’s earnings in the quarters ahead. Meanwhile, the stock is trading at 16 times annual earnings per share. It’s well positioned for a stagnant economy.
The Bank of Canada has rapidly raised interest rates over the past year. This is bad for most stocks and bonds but a net positive for companies that have to keep a cushion of cash for regulatory purposes. That means life insurance companies like Great-West Lifeco (TSX:GWO) could see some gains on their assets in the months ahead.
The stock is up 10.66% year to date. However, it’s still trading at 10 times earnings per share and offers a lucrative 5.96% dividend yield. In a stagnant economy with high interest rates, this stock should deliver excess cash flow to investors.