Equity markets continue to move higher in 2023, despite concerns over inflation, a sluggish economy, and rising interest rates. Moreover, there is a looming threat of an upcoming recession, which might drive the valuations of companies across sectors lower.
But as it’s difficult to time the markets, you need to identify quality stocks that can perform well across market cycles. Here are three such TSX stocks investors can buy in August 2023.
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Constellation Software stock
One of the largest tech stocks on the TSX, Constellation Software (TSX: CSU) is valued at a market cap of $60 billion. The tech stock went public in May 2006 and has since returned an emphatic 19,000% to shareholders in the last 17 years.
Constellation Software provides mission-critical software and services to several industries. It primarily acquires, manages, and builds software businesses that address the specific needs of its clients. Due to its focus on providing expert solutions, Constellation Software benefits from low switching costs and high customer engagement rates.
Over the years, it has grown rapidly via a combination of acquisitions and organic growth while establishing a large and diverse customer base. Priced at 35 times forward earnings, CSU stock is quite expensive at its current price. But it also trades at a discount of 8% to consensus price target estimates.
Martinrea International stock
An undervalued TSX stock, Martinrea International (TSX: MRE) is priced at 6.2 times forward earnings. Comparatively, analysts expect its adjusted earnings to rise by 9% annually in the next five years.
Martinrea is a global automotive supplier engaged in the design and manufacturing of lightweight structures and propulsion systems.
Despite a complex macro environment, Martinrea delivered record adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in the first quarter (Q1) of 2023. It expects continued improvement in the upcoming quarters due to higher production volumes, margins, and free cash flow.
The company was also awarded $70 million in new business in Q1, as it continues to win contracts from electric vehicle platforms. Its net debt to adjusted EBITDA ratio improved to 1.90 times in Q1 compared to 2.43 times in Q3 of 2022. The leverage ratio should improve in the upcoming quarters, as EBITDA and cash flow margins continue to improve.
Canadian Natural Resources stock
The final stock on my list is Canadian Natural Resources (TSX: CNQ), which also offers shareholders a tasty dividend yield of 4.6%. Canadian Natural Resources operates a diversified portfolio of assets in North America, the U.K., and offshore Africa.
Armed with a balanced mix of natural gas, light crude oil, heavy crude oil, bitumen, and synthetic crude oil, it represents one of the most diversified asset portfolios among energy producers.
The development of its oil sands mining and vast thermal in situ opportunities have allowed CNQ to transition to a long-life, low-decline asset base.
Priced at 12.3 times forward earnings, CNQ stock is quite cheap, given its strong balance sheet and attractive dividend yield. It ended Q1 with an adjusted funds flow of $3.4 billion, allowing the company to lower balance sheet debt significantly.
CNQ stock is also trading at a discount of 13% to consensus price target estimates.
