The TSX fell sharply in mid-August 2023 (nearly 2%) due to broad-based losses. While volatility remains high, Canadian stocks could still turn around or outperform in Q3 2023. Sid Mokhtari, the chief market technician at CIBC Capital Markets, said, “We think there’s a trend that’s evolving, and we think it’s a telling story for TSX.”
According to Mokhtari, the Canadian stock market generally outperformed the S&P 500 Index during August, and the ratio of stocks that made money is 70%. Whether or not the analyst is correct, smart investors are keenly watching SNC-Lavalin Group Inc. (TSX:SNC) and Stella-Jones Inc. (TSX:SJ).
Fresh gameplan
SNC-Lavalin is on a magnificent run in 2023, as evidenced by its market-beating 78.1% year-to-date gain. The $7.5 billion project management company provides various industries with engineering, procurement, and construction services. Its President and CEO, Ian L. Edwards, said the “Pivoting to Growth” strategy is highly successful.
In Q2 2023, net income from continuing operations rose 3,888% to $63.8 million versus Q2 2022. Services revenue increased 21.8% year over year to $2 billion, while the Services backlog reached a record high of $12.4 billion. Edwards adds, “Our second quarter results were strong as we continue to see robust demand for our services, leading us to increase our revenue growth outlook for 2023.”
The company also boosted its workforce by 2,400 early this year to meet the ongoing demand. Because of the sterling financial results, management raised its growth outlook and guidance. SNC-Lavalin projects organic revenue growth to be between 12% and 15% in 2023. The company boosted its manpower by 2,400 to meet the ongoing demand.
Since June 2019, SNC-Lavalin has shied away from lump-sum projects to focus more on engineering and consulting services. The company will also pursue opportunities in the U.S. as the government increases infrastructure spending. Edwards maintains a bright outlook as the company sharpens its game and becomes a pure-play engineering firm under his stewardship.
Edwards also disclosed that SNC-Lavalin will blaze ahead and embark on M&A activities starting in 2024. The industrial stock trades at $42.44 per share and pays a modest 0.18% dividend.
Successful growth plan
Stella-Jones investors are up 32.6% year to date ($63.81 per share), in addition to the 1.35% dividend yield. The $3.7 billion company is North America’s leading producer of pressure-treated wood products. It’s also the major supplier of wood utility poles to electric utility and telecommunications companies.
Its President and CEO, Eric Vachon, said Stella-Jones is executing its three-year growth plan and benefits from higher pricing dynamics for utility poles, railway ties, and industrial products. In the first half of 2023, sales and operating income increased 8% and 22% to $1.7 billion and $244 million, respectively, from a year ago.
During the same period, net income rose 14% year over year to $160 million. Vachon adds the year-to-date performance aligns with Stella-Jones’ plan to continue to grow the infrastructure-related businesses and increase profitability. Management projects sales to reach $3.6 billion in three years (2023 to 2025).
A bear to a bull market scenario
The TSX is still in a bear market, yet SNC-Lavalin and Stella-Jones are outperforming amid the economic uncertainty. You can imagine how much the stock prices could soar in a bull market and beyond.
