When you compare the top 10 performing Canadian stocks we cover this year to last year, or the year before, you’ll notice that the top stocks vary considerably from year to year. Why is this happening? And why does stock investing have to be this hard?
“Canadian stocks in our coverage universe have gone through the ebbs and flows of value and growth, except in a speed run,” is what I’d say if I had to make an elevator pitch. “2021 continued the swift pandemic recovery, led by growth and trendy lithium mining, and ended with a transition towards value, which continued into 2022. We then went defensive with materials, energy and grocery stores last year and now we’re back to having Shopify on top.” And then I’d run out of breath.
How can we go from battening down the hatches to placing bets on BlackBerry so quickly? And how are investors supposed to keep up?
How to Invest in Canadian Stocks
The pandemic, supply chain woes, and inflation in quick succession contributed to broad trends and opportunities that a wide net or a low-cost index fund can capture. After all, time in the market beats timing the market, especially if trends are fast-changing. But if you want alpha, you’ll probably need to become more of a stock-picker than a macroeconomic investor so that you know when to sell if you decide to buy any of this year’s top Canadian stocks.
Shopify Stock (SHOP)
With a wide lead and one of only two stocks with an economic moat rating, Shopify stock soared this year, but it’s still far from its highs of 2021 – and there are a few challenges ahead. “After establishing itself as the SMB [small and midsize business] leader, Shopify has been pushing more into the enterprise with Shopify Plus, which allows online stores to remain on the platform as their needs become more advanced,” says senior equity analyst Dan Romanoff, who cautions that while at the higher end, the company will enjoy success, it will face stiff competition from highly sophisticated and tightly integrated platforms from Salesforce CRM and Adobe ADBE.
AtkinsRealis Stock (formerly SNC-Lavalin) (ATRL)
In second place, the renamed Canadian engineering and construction firm posted solid third-quarter results and raised its full-year outlook, says equity analyst Krzysztof Smalec, “The company has maintained strong momentum in the services business line and continued to make progress toward completing its remaining lump-sum turnkey, or LSTK, project backlog.” AtkinsRealis Services ended the quarter with a $12.5 billion backlog, up 7% year over year, which gives Smalec confidence that the services business line can carry its momentum heading into 2024.
Kinross Gold Stock (K)
“No-moat Kinross Gold’s 2023 third-quarter result was better than our expectations. Higher gold sales volumes and prices along with lower unit cash costs drove a 66% increase in earnings [EBITDA],” says equity analyst Jon Mills. Looking ahead, Mills notes that while gold prices tend to be relatively uncorrelated to the broader economic cycle, Kinross had moderate net debt of about US$2 billion at end September 2023 and is likely to have moderate financial leverage for the foreseeable future.
Fairfax Financial Holdings Stock (FFH)
In fourth place, insurance business/investment fund Fairfax Financial Holdings stock is one of the rare stocks to appear twice on the Canadian leaderboard, almost doubling its gains last year. Senior equity analyst Brett Horn explains how it happened: “As the market turned in 2020, Fairfax went though a period of volatility but finished the year with a modest reduction in book value per share. During 2021, the company's bullish stance was a positive, before becoming a drag again in 2022. This year, management's decision to keep the duration short on its fixed-income portfolio has paid substantial dividends, as the company has been able to shift into higher yield securities relatively quickly.”
Great West Lifeco Stock (GWO)
Insurance companies did well in Canada this year, with Great-West Life stock in 5th. “No-moat-rated Great-West Life reported a decent set of numbers in the third quarter as the company benefited from higher interest rates and underwriting profitability remained solid,” says equity analyst Suryansh Sharma. In terms of whether this stock can also have a repeat rally, keep the limitations of premium growth in mind. “Great-West Lifeco is an established player in mature insurance markets, which can limit growth opportunities,” says Sharma, “We project premium growth of midsingle digits in the Canada and U.S. segments and low single digits for the Europe and reinsurance business.”
BlackBerry Stock (BB)
Keeping up with former Canadian smartphone maker, BlackBerry, is a great challenge for stock pickers. This year, investors bet on its promising Internet of Things IoT business, which at one point was being considered for an IPO. Equity analyst William Kerwin is disappointed on behalf of investors who would have found the new stock attractive. As for BlackBerry’s other businesses, “We continue to see BlackBerry’s cybersecurity business as a potential acquisition target for a larger endpoint protection provider and believe that the IoT business could garner significant market attention as a stand-alone business benefiting from autonomous driving,” says Kerwin.
Power Corporation of Canada Stock (POW)
Appearing back in 2021 on out Canadian top 10, Power Corporation of Canada is another great example of insurance and investing combined. The holding company derives most of its underlying value from its ownership stakes in no-moat Great-West Life and narrow-moat IGM Financial IGM, explains Sharma. “We estimate that Power Corp.'s stake in two publicly listed companies accounts for approximately 85% of its overall value. The company has stated that rather than diversifying across industries, Power Corp. will focus on the financial services sector. The company simplified its ownership structure and reduced corporate costs after it acquired all the shares of Power Financial in a restructuring effort in 2020.”
Manulife Financial Stock (MFC)
Yet again, as insurance and investing meet, Manulife ekes out 8th place among Canadian stocks this year as it bets on Asia for growth. “No-moat-rated Manulife Financial reported strong results in the third quarter as growth momentum continued in Asia and underwriting profitability remained solid,” says Sharma. “The Asia business has been a big focus for management in recent years as it expects strong growth in this segment on the back of secular economic trends such as the emergence of the middle class, relatively low insurance penetration, and a large mortality protection gap in these countries,” he says.
Thomson Reuters Stock (TRI)
While many may think of the company as a news operation, Thomson Reuters stock would not be on the leaderboard today without its legal, tax and accounting businesses – which also helped it get on the leaderboard in 2021. “Thomson Reuters should be able to double down on industry-leading software like Westlaw in the legal segment and Checkpoint in tax and accounting, leveraging a customer base that includes the Big Four global accounting firms and virtually all the top 100 U.S. legal and accounting firms in some capacity,” says equity analyst Rajiv Bhatia.
Gildan Activewear Stock (GIL)
Wrapping up the top 10 Candian stocks we covered in 2023, t-shirt king Gildan also got 10th place in 2021, which is an impressive feat considering it operated in a market characterized by limited branding and product differentiation, according to senior equity analyst David Swartz. “We attribute Gildan’s leading share in imprintables to its investments in the category and its cost-efficient production model,” says Swartz, “The firm has approximately 80% market share in printwear basics in the U.S. and acquisitions have made it a stronger player in fashion basics.”
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