3 Canadian Stocks to Buy Ahead of an Inevitable Bull Market

High-risk investors with a long-term investment horizon can consider positions in these Canadian stocks.

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The stock market goes up and down, as do its components. Some stocks will outrun others in a bull market that will inevitable come after a bear market and recovery. Particularly, they include cyclical stocks like Magna International (TSX:MG) and Aecon (TSX:ARE), which are more sensitive to the economic boom and bust.

Believe it or not, the big Canadian bank stocks will also do well in a bull market, which will likely be driven by a growing economy. So, if you’re a low-risk investor, you should highly consider the big bank stocks for long-term investment.

Magna International

Auto part maker Magna International is a reasonable buy today. The cyclical stock is down about 44% from its peak in 2021. It continues to be weighed down, as Canada and the United States expects a recession this year.

Typically, during recessions, the stock is hit hard with big cuts in earnings, which come with massive cuts in analyst stock price targets. That said, as a Canadian Dividend Aristocrat, Magna stock has shown its ability to increase its dividend through economic cycles. So far, it has increased its dividend for 13 consecutive years with a 10-year dividend-growth rate of 12.6%. Investors should note that its dividend growth is bumpy year to year.

At writing, the cyclical stock offers a dividend yield of almost 3.6%. A bull market could lead to a double-digit rate return over the next five years.

Aecon

Construction company Aecon could benefit from increased government spending in the sector to stimulate economic growth during recessions. The stock is still a long way off from its peak in 2021. If it returned to that level, it’d be a whopping appreciation of about 66%.

Currently, at $12.78 per share at writing, it pays a dividend yield of 5.8% — a dividend it has increased for four consecutive years. The company seems eager to protect its dividend. It has not cut its dividend since at least 2007. High inflation and a resultant jump in the cost of some of its projects caused a 40% cut in its earnings last year. However, the company is recovering from it, which will translate into a turnaround of the stock, especially in a bull market.

Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce (TSX:CM), or CIBC, stock is depressed, trading at about 28% below its 2021 peak. The bank is down likely from concerns about a recession this year. The bank’s earnings will likely be weighed down this year from higher provision of credit losses as the percentage of bad loans are anticipated to rise in a recession.

Nonetheless, its dividend should remain safe. Buyers of CIBC stock today get paid well to wait — they can lock in a dividend yield of almost 6.1%. At $56.09 per share at writing, the big Canadian bank stock is undervalued and can provide price appreciation of about 38% over the next few years.

Investor takeaway

It could take some time for a bull market to come but it will come in time, following the stages of an economic cycle. In an economic boom, these stocks should do well. You can build positions over time via platforms like Wealthsimple to potentially get a lower cost base while paying no commission fee!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Magna International. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.

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