Canadian stocks are in an interesting place. On the one hand, certain segments of the stock market have been robust (energy and materials, in particular). On the other, weakness in tech and financial over the past year has weighed on overall returns.
In this article, I’m going to touch on one stock from both sectors. I think these companies have the ability to course-correct in 2023, and to some extent, they already have.
On any sort of significant market weakness, I’m going to consider adding these two top Canadian stocks.
Let’s dive in.
Top Canadian stocks: Shopify
Shopify (TSX:SHOP) is Canada’s e-commerce giant. Once the most valuable stock in the entire TSX, Shopify has since fallen out of favour, as have many high-growth stocks, over the past year.
Shopify’s business model, which revolves around its e-commerce platform for small- and medium-sized businesses to set up online shops, saw an incredible surge in interest following the pandemic. However, as the pandemic-driven tailwinds have receded, so too has Shopify’s valuation.
It’s likely that Shopify was too highly valued on the way up. But now, the question is whether this stock is reasonably valued, given how hard it’s been hit over the past year.
I think the selloff with Shopify is likely overdone. Yes, the company has missed estimates of late. But a year-over-year revenue-growth rate of 25.7% is certainly not bad, considering the compounded growth this company has seen for so many years.
Shopify has shown the ability to be profitable. However, it’s the consistency with respect to profitability that’s been lacking of late.
It’s my view that if Shopify can put together a couple profitable quarters, this is a stock with some serious upside potential. Thus, for long-term investors seeking a stock that can course-correct in 2023, Shopify is a great place to start the search.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD) is one of Canada’s so-called “Big Five” financial institutions. Like its peers, TD provides banking, insurance, credit and a range of financial services on a global scale. While the company’s business is primarily located in Canada and the U.S., TD has turned into a global player in specific business segments in recent years.
Given the ongoing concerns around the banking sector, TD stock has taken a hit in recent weeks. In my view, this recent decline could bode well for long-term investors looking to take advantage of this dip.
Indeed, TD stock has historically been a strong performer, even in times of turmoil. Like other heavily regulated Canadian banks, there’s reason to believe that this time won’t be different. Thus far, it appears most Canadian banks will make it out of this mess unscathed.
Additionally, this recent share price decline has only provided investors with a better entry point for capital gains in the future, and a better dividend yield. Currently, TD stock yields approximately 4.7%. That’s better than many medium-term bonds, making this stock one that’s got great total-return potential over the long term.
