The S&P/TSX Composite just gained 3.3% in one week, its strongest performance in four months, before closing at a record 36,381. That sounds wonderful until an investor realizes the market has apparently left without them. Suddenly, every green number feels personal, cash looks lazy, and buying something before lunch seems like a perfectly respectable strategy.
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The rally beneath the rally
A record index doesn’t mean every stock has become expensive. The TSX can rise because a few heavyweight sectors are soaring, then broaden as investors discover companies whose earnings are improving faster than their valuations. That second stage is often where patient investors find the stocks everyone claims they “almost bought” six months later.
The backdrop is cooperating. Canada added 75,100 jobs in July, while weaker U.S. employment reduced fears of another immediate Federal Reserve rate increase. Lower rate anxiety can support valuations, consumer spending, and business activity, although one inflation report could still remove the punch bowl. I’d therefore focus on profitable companies with their own catalysts instead of treating buying stocks in Canada like purchasing a ticket to an index party. So, where should investors look?
MFC
Manulife Financial (TSX: MFC) sells insurance, wealth-management products, retirement solutions, and financial advice across Canada, Asia, and the United States. That global reach gives it several ways to grow without depending entirely on Canadian borrowers. Second-quarter core earnings rose 12% to $1.9 billion, while core earnings per share (EPS) increased 16%. Its 16.3% core return on equity suggests the company isn’t merely getting bigger, it’s producing attractive profits from shareholder capital.
The balance-sheet story is improving too. Manulife agreed to transfer the biometric risk on $3.2 billion of long-term-care reserves to Munich Re. Once completed, its three recent transactions will have reduced long-term-care risk sensitivity by 24%, removing some of the uncertainty investors have historically attached to the business.
At a recent $61.78 close, the $1.94 annual dividend yields 3.1%. The stock isn’t bargain-bin cheap, while weak markets or insurance claims could interrupt growth. Still, better earnings and lower legacy risk can keep pulling this member of Canada’s blue-chip stocks higher.
AC
Air Canada (TSX: AC) offers the more dramatic opportunity. Air Canada stock operates Canada’s largest airline, the Aeroplan loyalty program, cargo services, and an international network that benefits when employment, consumer confidence, and travel demand remain strong. First-quarter revenue reached a record $5.8 billion, while free cash flow hit $1.6 billion. Apparently, charging people to cross an ocean remains a workable business model.
The shares hit $26.58 recently, near their 52-week high but still trading around 10 times trailing earnings. Management previously said demand remained resilient and expected pricing, hedging, and cost actions to offset much of its higher fuel expense. A strong report for Air Canada stock could force investors to reconsider that modest multiple quickly. Fuel prices, labour costs, debt, and an economic slowdown remain serious risks, so I’d keep this position smaller than Manulife’s.
Bottom line
I’d buy Manulife gradually as the steadier long-term compounder and consider a smaller Air Canada stock position before earnings only if I could tolerate turbulence. Waiting for both companies to remove every uncertainty may feel safer, but markets tend to charge extra once the earnings, risk reduction, and recovery are obvious to everyone staring at the same green screen.
