On Tuesday, Statistics Canada reported that Canada’s inflation in June declined to a 27-month low of 2.8%, lower than analysts’ expectation of 3%. With inflation showing signs of cooling down, investors hope the central bank will ease its monetary tightening initiatives. So, investors’ optimism has driven the equity markets higher, with the S&P/TSX Composite Index rising over 5% from its last month’s lows.
However, analysts are not thoroughly convinced and believe that the fight against inflation is not over as food and mortgage expenses continue to rise. Food prices are up over 9% in June and have gone up by over 20% in the previous two years. Despite the uncertainty, investors can buy the following two Canadian stocks without hesitation, given their solid underlying businesses and healthy growth prospects.
Dollarama
Dollarama (TSX:DOL) is a Canadian discount retailer with 1,507 stores across Canada. Additionally, it owns a 50.1% stake in Dollarcity, which owns and operates 448 stores across South America. Despite the inflationary environment, the company continues to report strong performance. Sales and EPS (earnings per share) grew by 20.7% and 28.6% in the April-ending quarter, respectively.
The addition of 76 new stores over the last 12 months and same-store sales growth of 17.1% drove its topline. Supported by its compelling value offerings and affordable product mix, the company witnessed a 15.5% increase in transactions during the quarter. Meanwhile, the average transaction value also grew by 1.4%. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) also increased by 28.3%.
Meanwhile, given its expansion plans, I expect the uptrend in Dollarama’s financials to continue. The company’s management has planned to open 60–70 stores each year while raising its store count to 2,000 by 2031. Besides, the company is boosting its direct sourcing capabilities, which could help offer products at attractive prices. It is also improving its operating efficiency and optimizing its logistic operations to support its expansion plans. So, given its healthy growth prospects and the essential nature of its business, I expect Dollarama to outperform in this volatile environment.
Waste Connections
Waste Connections (TSX:WCN), the third-largest solid waste management company in North America, is another excellent defensive stock that you could buy in this uncertain environment. It operates in secondary and exclusive markets, thus maintaining its higher margins despite its aggressive acquisition strategy. Supported by solid financials and strategic acquisitions, the company has delivered impressive returns of above 540% in the last 10 years at a CAGR (compound annual growth rate) of 20.5%.
Meanwhile, the uptrend could continue, given its acquisitions, solid underlying business, and continued investments in renewable natural gas and resource recovery facilities. Besides, the company provides non-hazardous oilfield waste treatment and disposal services in the United States. The growing exploration activities amid rising energy demand could also drive the need for the company’s services. So, the waste solutions provider’s long-term growth prospects look healthy.
Meanwhile, WCN has also rewarded its shareholders by raising its dividends at a CAGR of over 15% since 2010. Considering all these factors, I am bullish on the company despite the uncertain market conditions.
