Yesterday, the United States and the United Kingdom announced a trade deal framework and hope to close the final deal in the coming weeks. Along with these developments, easing trade tensions between the United States and China have boosted the equity markets, with the S&P/TSX Composite Index rising 13.6% compared to last month’s lows. However, the protectionist policies could hurt global growth in the coming quarters, thus impacting equity markets.
Against this backdrop, I believe investors should seek a balanced asset portfolio to navigate this uncertainty. Here are my two top picks.
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Shopify
Shopify (TSX: SHOP), which reported a solid first-quarter performance yesterday, is my first pick. Its topline grew 27% amid growth in both subscription and merchant solutions. The revenue from its subscription solutions grew 21.3%, while merchant solutions posted topline growth of 28.9%. The increased number of merchants on its platforms, favourable pricing changes, and higher variable platform fees boosted its subscription revenue. Meanwhile, the growth of GMV (gross merchandise value) and increased penetration of Shopify payments amid growing adoption of its payment solutions and geographical expansion drove the company’s revenue from merchant solutions.
The company’s gross margin fell 90 basis points to 49.5% amid a rise in cloud and infrastructure hosting costs and a decline in non-cash revenues. Besides, its operating expenses increased by 10.9%. However, as a percentage of total revenue, operating expenses declined from 47% in the previous year’s quarter to 41%. Its operating margin improved from 4.6% to 8.6%, while its free cash margin increased from 12% to 15%.
Moreover, I expect the uptrend in Shopify’s financials to continue as more small and medium-scale enterprises are taking their businesses online, thus expanding Shopify’s addressable market. The e-commerce platform continues to focus on innovative product development and geographical expansion to boost its customer base and same-store sales. The company has made strategic acquisitions and is developing innovative AI (artificial intelligence)-powered products to enhance its customer experience. Along with these growth initiatives, the company is also adopting AI to strengthen its operational capabilities and efficiencies. Considering all these factors, I believe Shopify would be an excellent buy now.
Waste Connections
Second on my list is Waste Connections (TSX: WCN). The waste management company reported an impressive first-quarter performance last month, exceeding its guidance. The topline grew 7.5% to US$2.2 billion amid price-led organic growth and continued acquisitions. Amid revenue growth, the company’s adjusted net income grew by 9.1% to US$293.1 million. Also, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin improved 60 basis points year-over-year to 32% and generated free cash flows of US$332.1 million.
As of April 23, WCN has acquired several assets this year, which can contribute US$125 million to its annualized revenue. Given its solid financial position and free cash flows, management expects above-average acquisition activity this year. Further, its unique market selection, decentralized operating model, and improved employee retention could support its margin expansion in the coming quarters. Moreover, WCN stock has also raised its dividends since 2010 at a 14% CAGR (compound annual growth rate). Considering all these factors, I believe WCN would be an excellent buy.
