Last week, the Bank of Canada reduced its overnight interest rate by 25 basis points to 2.5%, citing a soft labour market and easing inflationary pressures. Supported by the central bank’s recent interest rate cut, the S&P/TSX Composite Index has continued its uptrend, rising 21.2% year to date. However, concerns about the impact of protectionist policies on global growth, coupled with the sharp rally in equity markets in recent months, continue to persist. Therefore, I believe investors should balance their portfolios by incorporating growth, defensive, and dividend stocks. Meanwhile, here are my three top picks.
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Celestica
With significant exposure to the fast-growing artificial intelligence (AI) market, Celestica (TSX: CLS) is among the most compelling growth stocks to consider for your portfolio. The company has seen strong buying interest this month, with its stock climbing 31.7% and gaining more than 165% year to date. Amid these gains, the company’s valuation has increased, with the stock now trading at a NTM (next-12-month) price-to-earnings multiple of 41.7. Although Celstica looks expensive on a valuation basis, it is justified in light of its robust growth outlook.
The growth in the adoption of AI and the rising demand for computing capacity have prompted hyperscalers to expand their AI-ready capabilities and raise their investments in data centres, thereby driving demand for Celstica’s products and services. The company continues to expand its product offering by launching innovative products to meet the growing needs of its customers. Amid these growth prospects, the company’s management projects its top line and adjusted EPS (earnings per share) to grow 19.7% and 41.8%, respectively, this year. The company’s management also expects to generate approximately $400 million in free cash. Considering all these factors, I am bullish on Celestica, despite its expensive valuation.
Dollarama
Second on my list is Dollarama (TSX: DOL), a defensive stock with a tilt towards growth. Offering a diverse selection of consumer goods at affordable prices, the Montreal-based retailer continues to attract customers even amid macroeconomic headwinds. Its direct-sourcing strategy and streamlined logistics underpin its ability to offer products at competitive prices.
Moreover, Dollarama continues to expand its footprint and expects to add 535 stores over the next nine years, increasing its store count to 2,200 by the end of 2034. Additionally, its recent acquisition of The Reject Shop, which operates 395 discount stores, has expanded its presence to the Australian retail market. The company has also planned to expand its store count in Australia to 700 units by the end of 2034.
Additionally, Dollarama owns a 60.1% stake in Dollarcity, which operates 658 stores in Latin America. Meanwhile, Dollarcity has aggressive expansion plans and is hopeful of increasing its store count to 1,050 by the end of 2031. Dollarama also owns an option to increase its stake to 70% in Dollarcity by the end of 2027. Considering its solid underlying business and healthy growth prospects, I believe the uptrend in Dollarama’s financials and stock price will continue, making it an attractive investment opportunity.
Enbridge
Energy giant Enbridge (TSX: ENB) would be my final pick due to its consistent dividend payouts and high yield. The company transports oil and natural gas through its pipeline network, operating under a tolling framework and take-or-pay contracts. Besides, it operates low-risk natural gas utility assets and power purchase agreements-backed renewable energy assets, making its financials less prone to market volatility. The company’s strong and consistent financial performance has enabled it to pay dividends for 70 consecutive years, with dividend growth at a 9% CAGR (compound annual growth rate) since 1995. In addition, the stock currently offers an attractive forward dividend yield of 5.54%.
Moreover, Enbridge continues to expand its asset base through approximately $9 billion to $10 billion of capital investments annually. These expansions could help the company capitalize on rising energy demand amid the expansion of power-intensive data centres, growing economic and industrial activities, and improving living standards. Therefore, I expect these expansions to strengthen Enbridge’s financial position in the years ahead, enabling it to sustain healthy dividend payouts to its shareholders.
