Amid progress in diplomatic efforts toward a potential U.S.-Iran peace deal and stronger-than-expected corporate earnings, the Canadian equity markets have rebounded sharply in recent weeks, with the S&P/TSX Composite Index gaining 8.8% year to date. However, uncertainty surrounding the timing and outcome of the negotiations, along with persistent inflationary pressures driven by elevated fuel prices, continues to pose risks to the broader economic outlook.
Despite the uncertain environment, I believe the following two stocks are well-positioned to outperform this year, supported by favourable industry trends, resilient underlying businesses, and strong long-term growth prospects.
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Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is one of Canada’s leading crude oil and natural gas producers, with a portfolio of large, low-risk, and high-value reserves that require relatively low capital reinvestment. The company’s efficient operations and disciplined cost management have helped lower its breakeven levels, supporting strong profitability and robust cash flow generation. Backed by these healthy cash flows, CNQ has increased its dividend for 26 consecutive years at an impressive annualized rate of 20% and currently offers an attractive forward dividend yield of 4%.
Meanwhile, ongoing geopolitical tensions in the Middle East have pushed oil and natural gas prices higher, creating a favourable environment for energy producers such as CNQ. I also expect commodity prices to remain elevated in the near term, as the United States and Iran have yet to finalize a peace agreement. To further strengthen its production capabilities, the railroad plans to invest approximately $6.9 billion in capital projects this year.
Supported by its strong financial performance, CNQ has also continued to strengthen its balance sheet. The company has reduced its net debt to $16 billion and aims to lower it further to $13 billion over time. Its liquidity position remains solid, with available liquidity reaching $6.3 billion at the end of the first quarter.
In addition, the company’s long-term growth outlook remains attractive, supported by proven reserves exceeding 5 billion barrels of oil equivalent and a reserve life index of 32 years. Thanks to its strong quarterly performance and supportive commodity price environment, CNQ has generated an impressive year-to-date shareholder return of 37.2%. Despite this rally, the stock still trades at a reasonable next-12-month price-to-earnings multiple of 10.4, making it an appealing investment opportunity for long-term investors.
Bank of Nova Scotia
Another stock I believe is an attractive buy this year is Bank of Nova Scotia (TSX:BNS), one of Canada’s largest financial institutions with operations across multiple countries. Thanks to its diversified revenue streams and broad geographic presence, the bank generates stable and reliable cash flows that are less vulnerable to market volatility, economic cycles, and broader macroeconomic pressures. This resilient business model has enabled BNS to pay dividends consistently since 1833.
Earlier this week, the bank reported strong second-quarter results, with adjusted earnings per share (EPS) rising 32.9% year over year, while adjusted return on equity improved to 13.2% from 10.4% in the same quarter last year. All four of its operating segments posted earnings growth, led by a 53% increase in earnings from its Canadian Banking division, driven by higher revenue and lower provisions for credit losses. Following strong quarterly performance, the bank also increased its dividend to $1.14 per share, yielding 4.1% on a forward basis.
Meanwhile, persistent inflationary pressures linked to elevated energy prices could encourage central banks to move cautiously on future interest rate cuts. This environment may support BNS’s core lending business by helping maintain healthy net interest margins (NIMs). In addition, the bank’s strategic focus on expanding its North American operations while reducing exposure to riskier Latin American markets could improve earnings stability and strengthen the consistency of its cash flows over time.
BNS is also enhancing shareholder returns through its recently announced share repurchase program, which authorizes the buyback of up to 15 million shares over the next 12 months. Given its strong financial performance, attractive dividend yield, and improving operational focus, I believe BNS remains well-positioned to deliver solid long-term returns for investors.
