The equity markets have been under pressure since September. The solid third-quarter GDP (gross domestic product) numbers in the United States have also failed to improve investors’ sentiments. With the United States economy growing higher than analysts’ expectations, investors fear that the Federal Reserve could further tighten its monetary policies to bring inflation closer to its guidance of 2%. Amid the growing volatility in the equity markets, investors can strengthen their portfolios with these three solid businesses.
Dollarama
Despite the volatility in the broader equity markets, Dollarama (TSX:DOL) is up 7.5% since the beginning of September. Its solid second-quarter earnings for fiscal 2024, which ended on July 30, drove its financials. During the quarter, the company’s revenue and diluted EPS (earnings per share) grew by 19.6% and 30%, respectively. With inflation eating into consumers’ pockets, the company’s broad range of products at attractive prices is becoming popular among customers, thus driving its same-store sales.
Further, the discount retailer enjoys strong cash flows that can fund its organic network growth. It enjoys a quick sales ramp-up, with a payback of less than two years. Meanwhile, the company also plans to add 60-70 new stores every year, with a target of reaching 2,000 stores by 2031. So, its capital-efficient, growth-oriented business model with a solid direct-sourcing platform could continue to drive its financials and stock price in the coming quarters, thus making it an excellent buy in this volatile environment.
Waste Connections
Second on my list is Waste Connections (TSX:WCN), which reported its third-quarter earnings last week. Its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 9.8% and 14.1%. Year over year, its adjusted EBITDA margin expanded by 120 basis points. Year to date, it generated an adjusted free cash flow of US$969.3 million. Despite its solid performance, the company has lost over 6% of its stock value since reporting its third-quarter earnings.
The announcement by the company’s management that a landfill situation in Texas could impact its revenue and adjusted EBITDA by around US$20 million has weighed on the company’s stock price. Meanwhile, the pullback offers an excellent buying opportunity for long-term investors due to its solid underlying business and healthy growth prospects.
The company expects its acquisition activities to continue for the rest of this year. Amid these acquisitions and solid employee retention, the management expects above-average margin expansion in its solid waste management business next year. So, the management is projecting a high single-digit adjusted EBITDA growth next year on mid- to high single-digit revenue growth. So, I am bullish on Waste Connections, despite the near-term volatility.
Canadian Natural Resources
Oil prices strengthened in the third quarter amid supply concerns due to the tropical storm off the Gulf Coast in the United States and rising demand, especially in China. Meanwhile, the ongoing Israel-Palestine conflict could support oil prices in the near to medium term. RBC Capital Markets analyst Greg Pardy is bullish on Canadian oil and natural gas companies. He predicts a solid third-quarter performance from these companies amid elevated commodity prices.
Given the favourable energy environment, I have selected Canadian Natural Resources (TSX:CNQ) as my final pick. The company is strengthening its production facilities through a $5.4 billion investment this year. Also, the company has reduced its debt levels over the previous three years amid solid cash flows and has repurchased $8.6 billion worth of shares since the beginning of 2021. The company has also raised its dividend at an annualized rate of 21% for the 23 previous years, while its forward yield currently stands at a juicy 4.1%. Considering all these factors, I believe CNQ would be an excellent buy in November.
