Amid easing inflation, solid employment numbers, and the clearance of the debt ceiling bill by the U.S. Senate, the global equity markets have witnessed healthy buying this month. The Canadian benchmark index, the S&P/TSX Composite Index, is up 2.8%.
However, with the inflation still higher than the Federal Reserve’s guidance of 2%, analysts expect the benchmark interest rates to remain higher in the near term. So, concerns over global growth amid a prolonged high-interest rate environment still exist. Besides, some analysts are predicting a recession in the second half of this year, which could last through the first quarter of 2024.
Despite the uncertainty, investors can buy the following two stocks without hesitation, given their solid underlying businesses and healthy growth prospects.
Dollarama
Dollarama (TSX:DOL) is a Canadian discount retailer operating 1,507 stores across Canada. The company offers a wide range of product offerings at various attractive price points while covering around 80% of the Canadian population, which falls within 10 kilometres of the company’s stores. Despite the inflationary environment, the company continued to deliver solid performances.
In the first quarter of fiscal 2024, which ended on April 30, the value retailer’s top line grew by 20.7%. Its solid same-store sales growth of 17.1% and net addition of 76 stores over the last 12 months drove its sales. Driven by sales growth, its diluted EPS (earnings per share) also increased by 28.6% to $0.63.
Meanwhile, I expect the uptrend in Dollarama’s financials to continue. With inflation lowering consumer spending power, the retailer’s compelling value proposition and affordable product mix could attract more customers in the coming quarters, thus driving its sales. Besides, the company is also strengthening its direct sourcing capabilities and improving its operating efficiency to deliver greater value to its customers. Further, the retailer hopes to add 60–70 net new stores this year.
Given the essential nature of its business and growth prospects, I expect Dollarama to deliver solid performances in the coming quarters, thus driving its stock price higher. Besides, the company also offers a quarterly dividend of $0.0708/share, with its forward yield at 0.33%.
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Waste Connections
Waste Connections (TSX:WCN) is an integrated waste management company operating primarily in exclusive or secondary markets across the United States and Canada. It has delivered an impressive total shareholders return of 573% over the last 10 years at a CAGR (compound annual growth rate) of 21%.
Waste Connection’s solid performances and strategic acquisitions have increased its stock price. Since 2011, the solid waste collector and recycler has made $13.5 billion worth of acquisitions. Despite its aggressive acquisitions, the company has managed to keep its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin above 30%, which is encouraging.
Meanwhile, management has provided optimistic 2023 guidance, with its top line projected to grow by 11.6%. Strong pricing and continued acquisitions could drive its financials this year. The guidance also projects its adjusted EBITDA and net income to grow by 12.6% and 15%, respectively. Besides, the company has raised its dividends at a CAGR of 15% since its inception in 2010. Considering all these factors, I believe Waste Connections would be an excellent buy, irrespective of the economic outlook.
