Strange as it may sound, the Bank of Canada might implement another rate hike in July 2023 because of a resilient economy. Based on data from Statistics Canada, GDP rose by 0.4% in May and could expand at a 1.4% annualized rate in the second quarter.
The policymakers believe the inflation rate could remain above their 2% target due to the economic momentum. Recent consumer surveys also show businesses and households are doing better amid elevated interest rates. Investors who bank on the strength of Canada’s economy should invest in blue-chip stocks that help drive or facilitate economic growth.
Canadian Natural Resources (TSX:CNQ) and Canadian Pacific Kansas City Limited (TSX:CP), or CPKC, are solid investment choices for their strong fundamentals and low volatility. The businesses will endure regardless of the economic environment.
Senior Canadian oil & natural gas company
Canadian Natural Resources is a market mover and among the actively traded Canadian stocks. The diversified asset portfolio is the strength and competitive advantage of this $81.3 billion senior Canadian oil and natural gas company.
The long-life, low-decline asset base is a balanced mix of natural gas, light crude oil, heavy crude oil, bitumen and synthetic crude oil (SCO). Besides Western Canada, the top-tier energy player operates in the U.K. portion of the North Sea and Offshore Africa.
According to management, Canadian Natural’s assets are unique and robust through all cycles. They enable the maximization of corporate asset value and free cash flow (FCF). The new FCF allocation policy states that when net debt is below $10 billion, the company will return 100% of FCF to shareholders.
However, its CEO Tim McKay said CNQ could miss its debt target and delay the plan to return more cash to shareholders if oil prices continue to decrease. Nevertheless, even if oil prices are vulnerable, Canadian Natural stands tall for its history of strong performance.
The energy stock is a dividend aristocrat owing to 23 consecutive years of dividend increases (21% compound annual growth rate since inception). If you invest today, the share price is $74.48 (+1.6% year to date), while the dividend yield is 4.9%. CNQ’s total return in 47.2 years is 41,008.5% (13.6% CAGR).
Differentiated growth profile
CPKC is well-positioned to drive multi-year, long-term profitable growth following the merger of Canadian Pacific Railway and Kansas City Southern. The $99.6 billion company boasts a single-line railroad that connects a continent.
Its President and CEO, Keith Creel, said the unrivalled single-line service connecting Canada, the U.S., and Mexico is a unique advantage and allows CPKC to deliver a differentiated growth profile. He adds the new network should empower its deep bench of industry-leading railroaders and ensure success.
For 2024 to 2028, CPKC targets high-single-digit revenue CAGR. Management will also convert approximately 90% of core adjusted income to free cash during the period. The industrial stock trades at $107 per share (+6.4% year to date) and pays a modest and safe 0.73% dividend. Market analysts have a 12-month average price target of $117.98 (+10.2%).
Perfect combination
Canadian Natural Resources and CPKC are two of the top 10 largest TSX companies by market capitalization. The oil giant could be your anchor stock while the railroad operator is the perfect backup.
