The global equity markets are on upward momentum amid signs of easing tension in the Middle East. Yesterday, Hamas announced that it has agreed to the Egyptian-Qatari cease-fire proposal to end the war with Israel, which improved investors’ sentiments. The S&P/TSX Composite Index is up 2.5% this month. Despite the renewed interest, higher inflation and a global slowdown due to prolonged higher interest rates are causes of concern. So, I believe the following two defensive stocks with a tilt toward growth would be ideal buys now.
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Waste Connections
Waste Connections (TSX:WCN) is one of the top TSX stocks to have in your portfolio due to its impressive historical returns, the essential nature of its business, and healthy growth prospects. The solid waste management company operates primarily in secondary and exclusive markets, thus facing lesser competition and enjoying higher margins. Over the last 10 years, the company has returned over 575% at an annualized rate of 21.1%, outperforming the broader equity markets.
In the recently reported first quarter of 2024, WCN’s topline grew 9.1% to $2.1 billion. Also, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 14.8%, and its adjusted EBITDA margin expanded by 160 basis points to 31.4%. Amid its continued acquisitions, improvement in employee retention and safety metrics, and rising commodity prices, the company is well-positioned to continue driving its financials in the coming quarters. It has provided optimistic guidance for this year, with its revenue and adjusted EBITDA projected to grow by 9.1% and 13.4%, respectively. Besides, its adjusted EBITDA margin could expand by 120 basis points to 32.7%.
WCN also pays a quarterly dividend of US$0.285, with its forward yield at 0.68%. Although its dividend yield is lower, investors could benefit from its consistent dividend growth. Since 2010, it has raised its dividends at an annualized rate of 14.3%. Considering all these factors, I believe WCN would be an excellent buy.
Dollarama
My second pick would be Dollarama (TSX:DOL), a discount retailer with an extensive presence across Canada. With its superior direct sourcing abilities and efficient logistics network, the company is able to provide a broad range of consumer products at attractive prices. So, it is witnessing solid same-store sales even in a challenging environment, thus driving its financials.
In fiscal 2024, which ended on January 28, the company’s top line grew by 16.1% to $5.9 billion. Same-store sales growth of 12.8% and a net addition of 65 stores over the last four quarters drove its sales. A 12.3% increase in transactions and a 0.4% increase in average transaction size drove the company’s same-store sales. Amid the topline growth and expansion of its gross margins, its net income increased by 26.1% to $1 billion. Besides, its adjusted EBITDA margin has expanded by 160 basis points to 31.7%.
Further, Dollarama has plans to increase its store count to 2,000 by fiscal 2031. Meanwhile, the company is expanding its digital footprint and optimizing its queue lines and check-out processes to improve customer convenience. Also, given its quick sales ramp-up, efficient capital model, and low average payback period, the expansion of its store network could continue to drive its financials in the coming years.
Meanwhile, Dollarama has raised its dividends 13 times since 2011, with its forward yield at 0.31%. Considering its solid underlying business and healthy growth prospects, I believe Dollarama would be an astute buy given this uncertain outlook.
