Given the volatile nature of equity markets in 2023, it makes sense to place your bets on recession-resistant companies that generate cash flows across market cycles. Here, I have identified two such TSX stocks, Dollarama (TSX:DOL) and Alimentation Couche-Tard (TSX:ATD), that have the potential to outpace broader markets in 2023 and beyond. Let’s see how.
The bull case for ATD stock
One of the largest stocks on the TSX, Alimentation Couche-Tard is valued at a market cap of $66.4 billion. Operating in the convenience sector, the Canadian company owns brands such as Circle K, Ingo, and Couche-Tard. It provides convenience products, including food, beverages, and road transportation fuel, as well as charging solutions for electric vehicles.
While several TSX stocks have pulled back significantly since the start of 2022, ATD stock is trading near all-time highs. The global retailer has already delivered market-thumping gains to long-term shareholders returning 6,400% in the last 20 years.
The company owns 14,300 stores in 24 countries allowing it to report sales of $83.7 billion in fiscal 2022. Analysts now expect the top line to surge 15.5% year over year to $96.7 billion (ended in March).
Priced at 17 times forward earnings, ATD stock is fairly valued. It also pays shareholders quarterly dividends of $0.14 per share, translating to a yield of less than 1%. But these payouts have risen by 21% annually in the last 18 years. With a payout ratio of less than 25%, ATD has enough room to increase dividends in the future.
With a coast-to-coast presence in Canada, ATD stores are located in 47 of the 50 states south of the border. It also enjoys leading market share in several regions in Europe. In the last 10 years, the TSX stock has increased adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 20% annually, which is exceptional.
The bull case for Dollarama stock
Another TSX stock that has delivered staggering gains to investors is Dollarama, which is up 2,580% since its initial public offering in late 2009. Valued at a market cap of $24 billion, Dollarama is a discount retailer that offers general merchandise and other consumable products.
The company opened 65 net new stores in fiscal 2023 (ended in January), allowing it to increase sales by 16.7%, EBITDA by 19%, and operating income by 21% year over year in the last 12 months.
Dollarama expects to benefit from strong demand for its products in the near term as inflation continues to weigh heavily on consumers. These demand trends are forecast to normalize in the second half of fiscal 2024.
Moreover, lower freight and logistics costs on imported goods will positively impact gross margins, allowing Dollarama to increase adjusted earnings from $2.76 per share in fiscal 2023 to $3.14 per share in fiscal 2024.
Priced at 26 times forward earnings, DOL stock is forecast to increase earnings by 19% annually in the next five years.
Dollarama will continue to open new stores and allocate resources towards capital expenditures to drive sales higher. It remains on track to end fiscal 2025 with revenue of $6 billion, up from $5 billion in fiscal 2023.
