The Bank of Canada increased its policy rate this month, contrary to economists’ expectations that it will keep rates on hold until year-end 2023. But with a tight labour market and rising consumer price index, the policymakers said forceful monetary tightening is necessary to bring inflation down to the 2% target.
However, a new round of interest rate increases will disrupt the stock market and cause sector rotations. Investors can seek safety in the industrial and consumer staples sectors as both do well when interest rates rise. Among the safe stocks and steady performers are Aecon Group (TSX: ARE), Alimentation Couche-Tard (TSX: ATD), and Rogers Sugar (TSX: RSI).
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Long growth runway
Aecon Group is well-positioned for growth and long-term success, given the resiliency of North America’s construction market. At 13.38 per share, current investors are up nearly 49% year to date and enjoy a 5.47% dividend. Market analysts have a 12-month average price target of $16 (+19.5%).
In Q1 2023, revenue increased 12.3% year over year to $1.1 billion, while the net loss of $9.4 million was 46% lower compared to Q1 2022. According to management, the nature of the business is seasonal in that revenue and profits are lower in the first half of the year but stronger in the back half.
Still, the outlook is positive and bright for this $824.6 million construction and infrastructure development company. Apart from a $6 billion backlog, Aecon has several significant ongoing projects and a robust pipeline of future projects.
Recession-resilient
Couche-Tard, the global leader in fuel and convenience retail, is a no-brainer choice for risk-averse investors. The $64.9 billion operator of convenience stores is recession-resilient, as evidenced by the sales growth during the Great Recession (+8%) and dot-com bubble fiasco (+5%).
If you invest today ($64.58 per share), the consumer staple stock has an 8.8% positive return year to date versus the TSX’s +2.62%. The dividend offer is a modest but safe 0.85% yield. ATD’s overall return in 10 years is an impressive 622.3%, representing a 21.8% compound annual growth rate (CAGR).
In the last 11 years, the CAGR of total revenues and net earnings were 11% and 19%, respectively. Couche-Tard’s footprint in the Southeastern U.S. will expand once it acquires 112 fuel and convenience retail sites from MAPCO Express. However, management sees a higher ratio of organic growth (60%) to acquisition (40%) in the months ahead.
Favourable dynamics and strong demand
The favourable dynamics of and strong demand for sugar reflects in the steady performance of Rogers Sugar. At only $5.84 per share (+4.2% year to date), you can partake in the mouth-watering 6.1% dividend. Don’t expect significant price appreciation, although the dividend payouts should be rock-steady.
In Q2 fiscal 2023, revenue and net earnings rose 7.7% and 29.1% year over year to $272.9 million and $11.06 million, respectively. Free cash flow (FCF) ending April 1, 2023 increased 11.2% to $51.8 million versus Q2 fiscal 2022. Management expects the momentum to sustain and the strong demand for sugar-containing products to drive profitability.
Steady performance
Economists believe aggressive rate hikes are in the offing if inflation remains sticky. Nonetheless, expect Aecon Couche-Tard and Rogers Sugar to remain steady throughout the year despite rising interest rates. They could also reward investors with market-beating returns in 2023.
