Best Stocks to Buy in May 2024: TSX Industrial Sector

Railways and garbage trucks, what’s not to love?

| More on:
A worker overlooks an oil refinery plant.

Source: Getty Images

The TSX industrials sector often gets overshadowed by the more popular energy and financial sectors, which typically offer higher dividend yields. However, overlooking industrials can be a misstep.

In particular, three companies stand out not for their flash but for their solid performance and stable market positions as natural monopolies. These firms might not catch the eye at first glance, but their historical performance speaks volumes about their investment worthiness.

Here are my top three picks from the TSX industrials sector for May 2024, highlighting companies that combine reliability with steady growth potential.

Two railway stocks

No two companies better exemplify a duopoly within the Canadian market than Canadian National Railway (TSX:CNR) and Canada Pacific Kansas City (TSX:CP).

Over the years, these two giants have solidified their positions as the main players in Canada’s railway sector, creating a natural duopoly.

This dominance is largely due to the substantial infrastructure required to operate a railway, which involves extensive and costly networks of tracks and stations. Such a high barrier to entry makes it unlikely for new competitors to emerge, thus maintaining the status quo.

A few decades ago, both companies also adopted a strategy known as “precision scheduled railroading,” or “PSR,” which significantly enhanced their operational efficiency.

As a result, both CP and CNR now boast impressive double-digit operating and profit margins, showcasing their ability to maximize profitability through stringent management practices.

However, there is currently a cloud of uncertainty hanging over these companies – the prospect of strike action. Labour risk is a common issue in the railroad industry, and while both CNR and CP have weathered similar challenges in the past, it remains a concern for investors.

Nonetheless, any resultant weakness in their stock prices could present a buying opportunity. History suggests that these companies are resilient, and buying during periods of labour unrest could be a strategic move for those looking to invest in these well-established rail giants.

A garbage company

Take a moment and look outside your residence on trash day; chances are, it’s a Waste Connections (TSX:WCN) truck handling your garbage pickup.

This company exemplifies another natural monopoly within the industrials sector, largely due to the complexities and regulatory requirements involved in securing permits for landfills and establishing waste collection routes.

Securing these permits and routes can be so challenging and restrictive that few new competitors can enter the market, allowing established players like Waste Connections to dominate.

Garbage collection might not be the most glamorous industry, but it proves to be immensely profitable, especially for a company like Waste Connections. This firm has leveraged its position effectively to continuously acquire smaller, regional competitors, expanding its reach and efficiency.

Currently, Waste Connections is experiencing impressive year-over-year earnings growth of 16.3% and revenue growth of 9.1%. It’s also one of the less volatile stocks out there, with a beta of 0.67.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

More on Investing

sale discount best price
Energy Stocks

Time to Pounce: 1 Phenomenal TSX Stock That Hasn’t Been This Cheap in a While

Now could be the time to get into Cameco (TSX:CCO) stock, which is up 81% in the last year but…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

3 Millionaire-Maker Tech Stocks That Should Be on Your Radar

These three tech stocks have already proven themselves worthy, but have a lot more to prove in the near future.…

Read more »

A close up image of Canadian $20 Dollar bills
Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Stocks for Beginners

The Top 3 Long-Term TSX Growth Stocks to Buy Today

These three growth stocks might be some of the best-performing stocks of the last year, but according to analysts so…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

top TSX stocks to buy

3 Top Canadian Growth Stocks That Could Make You Rich in 10 Years

Given their healthy growth prospects and attractive valuation, these three growth stocks could create superior wealth in the next 10…

Read more »

edit Sale sign, value, discount

Couche-Tard Stock is a Tremendous Bargain Today

Alimentation Couche-Tard (TSX:ATD) stock looks like a great bargain ahead of its coming earnings report.

Read more »