The Economy Surged in Q1: What’s Next for Canadian Stocks?

Canada’s economy is on a roll, but it is still a mixed bag for Canadian stocks like Enbridge Inc. (TSX:ENB) in the late spring season.

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Back in May, Statistics Canada reported that the Canadian economy grew at an annualized rate of 3.1% in the first quarter of 2023. The latest batch of data beat Statistics Canada’s own forecast and applied more pressure on the Bank of Canada (BoC) to proceed with yet another interest rate hike. Indeed, the BoC moved forward with a 25-basis point hike on Wednesday, June 7.

Today, I want to look at three top Canadian stocks that are interesting targets in this environment. Will Canada’s top companies and stocks deliver positive results alongside the broader economy in the summer of 2023? Let’s dive in.

Why I’m happy to grab this Canadian stock at a discount in the middle of 2023

Enbridge (TSX:ENB) is a Calgary-based energy infrastructure company. Shares of this Canadian stock have dropped 4.3% month over month as of close on June 8. That has pushed the stock into negative territory so far in 2023.

This company released its first-quarter fiscal 2023 earnings on May 5. Enbridge delivered adjusted earnings of $1.7 billion, or $0.85 per common share, which was largely flat compared to the first quarter of fiscal 2022. Moreover, the company reaffirmed its financial guidance for earnings before interest, taxes, depreciation, and amortization and distributable cash flow. Enbridge has maintained a deep project pipeline and remains one of the most dependable dividend stocks on the TSX.

Shares of this Canadian stock are trading in middling value territory right now. Enbridge offers a quarterly dividend of $0.887 per share. That represents a super-tasty 6.9% yield.

Here’s a defensive stock you can trust in a resurgent Canadian economy

Canadian National Railway (TSX:CNR) is a Montreal-based company that is engaged in rail and related transportation business. Its shares have dipped 4.6% over the past month. This Canadian stock has now dropped 5.6% in the year-to-date period at the time of this writing.

In the first quarter of fiscal 2023, the company posted revenues of $4.31 billion — up 16% or $605 million compared to the first quarter of fiscal 2022. Meanwhile, its operating income surged 35%, or $435 million year over year, to $1.66 billion. Adjusted diluted earnings per share jumped 38% to $1.82, which was a new record for the company.

This Canadian stock currently possesses a favourable price-to-earnings (P/E) ratio of 19. Canadian National Railway offers a quarterly dividend of $0.79 per share, which represents a modest 2% yield.

One more Canadian stock that looks undervalued right now

EQB (TSX:EQB) is the third Canadian stock that investors should be monitoring in this unique economic climate. This Toronto-based company provides personal and commercial services to retail and commercial customers across Canada. Shares of EQB have climbed 18% so far in 2023.

Canada housing has been one of the most dependable spaces since the beginning of the 2010s. However, this aggressive rate-tightening cycle has thrown cold water on sales and price growth in major metropolitan areas. Homeowners have thrived in a low interest rate environment over nearly 15 years. Now, recent reports indicate that many Canadian homeowners are on the brink as higher rates are juicing up mortgage payments. The renewed pressure to sell for those who cannot keep up may lead to increased sales activity in the months and potentially years ahead.

Shares of this Canadian stock last had a very attractive P/E ratio of 8.8. EQB offers a quarterly distribution of $0.37 per share, representing a 2.1% yield.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway, EQB, and Enbridge. The Motley Fool has a disclosure policy.

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