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10 Top Performing Canadian Stocks in 2022

The best returns this year came from a surprisingly mixed bag.  

Andrew Willis 28 December, 2022 | 12:39AM
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Canada

Unlike the top-performing medalist ETFs and mutual funds in Canada we’ve covered so far, this list isn’t all energy. For the second year, we have a variety of sectors represented among the top-performing Canadian stocks in our coverage universe.

10 Top Performing Canadian Stocks in 2022

From copper and specialty coal to fast food, dairy, electricity, insurance and indeed oil, we’ve kept things running relatively well in Canada, even as markets around the world adjust to economies altered by the coronavirus pandemic. The Morningstar Global Markets Index, which measures the performance of stocks in both developed and emerging countries around the world, has fallen 18.33% year-to-date (December 20). The Morningstar Canada Domestic Index, meanwhile, has fallen 6.54% year-to-date. Where is this strength coming from? Here’s an idea:

The top-performing Canadian stock in 2022, Teck Resources (TECK.B) has made its fair share of appearances in bright green on Morningstar Canada’s daily Heat Map page this year. What’s the draw? Special coal used for steel and copper are a big part of it. China is as well, though. Equity analyst Jon Miller explains that the country is the biggest buyer of everything Teck digs out of the ground. This means big business, but it could be a problem if the Chinese economy slows down. As we covered in a recent video, this risk combined with speculation makes for Canada’s most expensive stock according to our fair value estimate.

The second spot on the list for performance in Canada goes to Fairfax Financial Holdings (FFH), which senior equity analyst Brett Horn describes as an insurance business, “but is in some ways more of an investment fund.” The company is well known for its CEO, Prem Watsa’s bets and multi-billion-dollar windfall during the 2007-2008 financial crisis. “We think investors attracted to the stock due to a belief in Watsa’s ability to produce alpha on the investment side should consider his record over the past decade, which includes some big wins but also substantial losses and missed opportunities,” says Horn.

In third place, we have Pembina Pipeline Corp (PPL). Sector strategist Stephen Ellis credits the pipeline company for having a fully integrated “store” for its customers and their energy transport needs, allowing Pembina to “retain full economics over the midstream value chain,” but worries about how they’re going to grow: “Pembina's management prioritizes growth via acquisitions over organic development and optimization of the existing portfolio of assets acquired over the years. This prioritization of growth (management has alluded to cash flow growth of 7%-plus annually) has hurt returns in recent years, as organic projects tend to offer the highest returns.”

Coming up near the middle of the pack, but 2nd priciest on the list relative to our fair value estimate, is Canadian milk giant, Saputo (SAP). Comfortably securing its fifth-place spot with the help of sales advancing 20.9% in the second quarter, the dairy producer did suggest customers are starting to trade down across product categories to save money. Saputo is also facing a battle with inflation on the supply side, sector director Erin Lash notes, and it could be problematic if the company is looking to address the issue by raising prices which “we surmise could ultimately suppress volume and its share position further, due to the highly commoditized and perishable nature of Saputo’s product portfolio.”

The sixth- and seventh-place spots for top-performing Canadian stocks we cover are conveniently related (99% so, in terms of total revenue, according to senior equity analyst Dan Wasiolek), and are the only returning top-performing stocks this year. Loblaws Companies (L) and George Weston (WN) saw revenue improve by around 8% in the third quarter, and will probably improve if prices on No Name products go up after January.

Returns from fast food in Canada have been somewhat healthy in 2022, especially for those brands that adapted most quickly to new customer service expectations post-pandemic. Consider changes at Tim Hortons, Burger King and Popeye’s, owned by Restaurant Brands International (QSR). Equity analyst Sean Dunlop says “all signs point to permanent changes for operators” as customers favour seamless omnichannel and robust off-premises experiences.

Investors pushed grocery stocks higher as they paid more for food this year. Meanwhile, chains like Metro (MRU) saw their adjusted margins (EDITDA) edge down to 9.7%, however “we are still encouraged by the traffic growth in the quarter,” says Wasiolek, “which we think was partially achieved through Metro’s expanded click-and-collect offerings across its stores and increased sales channels via partnerships with Cornershop and Instacart.”

The last two stocks on the list of top-performing Canadian stocks in our coverage universe this year are both electricity companies but with rather different profiles. In ninth, Boralex (BLX), is focused on renewables and is both significantly smaller in size and lower in profile, which equity analyst Brett Castelli appreciates: “We credit the company for its historical focus on under-the-radar and generally smaller projects compared with peers.”

Trading at a premium and with a political profile, for better or worse, we have a regulated electricity company wrapping up the top performing stocks of the year. Hydro One (H)’s stock price was supported in the later part of the year as the company received Ontario Energy Board regulatory approval for its previously agreed-to settlement in its 2023-27 joint rate application. “The approval reaffirms Hydro One's $12.5 billion capital investment plan,” says senior equity analyst Andrew Bischof, “supporting our 5.5% annual earnings growth forecast and nearly 6% rate base growth.”

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Boralex Inc Class A38.20 CAD0.00Rating
Fairfax Financial Holdings Ltd Shs Subord.Vtg851.50 CAD0.00Rating
George Weston Ltd174.31 CAD0.00Rating
Hydro One Ltd36.39 CAD0.00Rating
Loblaw Companies Ltd120.99 CAD0.00Rating
Metro Inc73.04 CAD0.00Rating
Pembina Pipeline Corp47.37 CAD0.00Rating
Restaurant Brands International Inc66.99 USD0.00Rating
Saputo Inc35.74 CAD0.00Rating
Teck Resources Ltd Class B55.04 CAD0.00Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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