If you're looking for some of the best Canadian stocks to buy in 2022, you've definitely come to the right article.
And, the fact that you're looking for the top Canadian stocks shows you believe there is value right here at home.
Canadian stocks and the Toronto Stock Exchange, in general, have had a poor reputation in terms of returns. Many investors looking to learn how to buy stocks in Canada skip the Canadian markets and head down south for more growth.
Why? First off, the United State's economy is significantly larger than ours. And, it contains high-flying tech companies like Microsoft (MSFT), Meta Platforms (formerly Facebook) (META), Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG). The S&P 500 and NASDAQ are certainly indexes that are likely to give you higher overall returns over the long term.
But, there's money to be made when it comes to Canadian stocks and the Canadian stock market, especially in the environment we could be heading into, that being an economic downturn and recession. There will be plenty of headwinds for companies moving forward, and Canadian stocks are set to weather them better than most.
What are the best stocks to buy in Canada for 2022 and beyond?
- Nuvei (TSE:NVEI)
- Algonquin Power (TSE:AQN)
- Shopify (TSE:SHOP)
- Telus (TSE:T)
- Parkland Fuels (TSE:PKI)
- Goeasy Ltd (TSE:GSY)
- Dollarama (TSE:DOL)
- TFI International (TSE:TFII)
- Loblaw (TSE:L)
- Canadian Natural Resources (TSE:CNQ)
- Royal Bank (TSE:RY)
11. Nuvei (TSE:NVEI)
Nuvei (TSE:NVEI) is a provider of payment technology solutions to merchants and partners. The solutions provided are mobile payments, online payments, and In-store payments. Its geographical segments are North America; Europe, the Middle East, and Africa; Latin America; and the Asia Pacific. The vast majority of its revenue is generated from North America and EMEA.
The tech stock went public in August of 2020 and prior to a pretty nasty short report issued by a firm along with a correction in payment processing companies, it was providing some of the best returns on the TSX Index.
The short report severely damaged the company's share price, as it plummeted from the $175 range to as low as $63 a share. But, many major analysts went to bat for Nuvei, saying the report was misleading and that there is now large upside potential in the company's share price.
Nuvei's suite of products serves both online and in-store transactions and counts Stripe, Paypal, Fiserv, Lightspeed Commerce, Global Payments, Shift4 Payments, and WorldPay among its competitors.
Nuvei grew revenue by 64% in fiscal 2019 and over 50% in 2020. It then had an exceptional 2021, posting year-over-year top line growth of 80%. Analysts are expecting revenue growth to slow materially because of the potential recession. However, it's still expected to post strong growth.
Since going public, the company has attracted plenty of attention. There are 14 analysts covering the company – 9 rate it a “buy” or “outperform” and 5 rate it a “hold”.
Unlike other high-flying tech options, Nuvei is currently profitable. Something that may end up playing a key role in 2023 and beyond as investors are looking for cash flow positive companies after the speculative mania of 2020 and 2021.
It is important to note, that newly listed companies carry additional risk. They have less public history for investors to look at to assess the business model. There is also a significant amount of competition in the space, and many major competitors like Paypal have seen price weakness off a reduction of forward-looking guidance.
Can it meet lofty estimates? It will be interesting to see.
10. Algonquin Power (TSE:AQN)
The utility sector had a nice runup in 2021. Companies like Fortis and Canadian Utilities provided 20%+ returns as investors flocked to companies with reliable cash flows.
However, one company that didn't benefit from the runup at all was Algonquin Power and Utilities (TSE:AQN). The company had some one-off expenses in 2021 due to a large storm in Texas and also was dragged down in an overall renewable energy selloff. But, there are some misconceptions about Algonquin. The company is not solely a renewable energy player.
In fact, much like Fortis, the bulk of its revenue comes from regulated utilities, resulting in consistent cash flow.
Algonquin has over $16B in assets, serving over 1 million customers primarily in North America. The company also has a robust renewable energy asset base, with over 4GW of production capacity either in operation or under construction.
As with most utilities, the company has a very reliable dividend streak, with 11 straight years of dividend growth. It is one of the only utilities to have a 5-year dividend growth streak surpassing 11% annually.
But, there is a bit of bad news. Algonquin has stated these dividend growth rates are not going to be maintained going forward, and it's much more likely we see high single-digit growth. But, this still would be one of the highest growth rates out of all major utilities here in Canada, so it's not all bad news.
The guidance in reduced dividend growth created somewhat of a trifecta of bad news in 2021, which caused the stock to lag. The renewable selloff, dividend growth guidance, along with a heavily scrutinized acquisition of Kentucky Power caused investors to steer clear of Algonquin. And, there is also the forward outlook of rising interest rates that are weighing Algonquin down.
However, for the long-term investor, this simply represents an opportunity to grab a fast-growing utility at a very reasonable price. With a P/E to Growth Ratio (PEG) of only 0.26, the market is not factoring in the company's forward growth prospects into its current share price.
The acquisition of Kentucky Power was expected to be accretive to earnings this year but has now been pushed to next year. Analysts now expect the company to grow earnings in the mid-single digits along with a low double-digit annual revenue increase. Despite the negative sentiment, these remain some of the highest growth rates in the utility sector.
If you're looking for a contrarian play in the utility sector in 2022, Algonquin is one you should add to your watchlist. On a side note, the company also trades on the NYSE under the same ticker, AQN.
9. Shopify (TSE:SHOP)
A list of top Canadian stocks wouldn't be complete without the top-performing Canadian stock in recent memory, Shopify (TSE:SHOP). And yes, it's still one of the best-performing Canadian stocks since its IPO even after its catastrophic drawdown.
Shopify was much higher on this list in the past. However, we've placed it in the number 9 spot moving forward despite a significant correction in price. Why?
Well, the stock is being impacted significantly by the risk of rising interest rates and the downgrading of most high-tech valuations. Moving forward, especially in an inflationary environment, sentiment could remain negative.
This could cause tech multiples to continue shrinking. However, does that mean you'll regret a purchase of Shopify half a decade down the line? Absolutely not. And that's exactly why it's still on this list.
Shopify offers an e-commerce platform primarily to small and medium businesses globally. They operate in two primary segments, subscription solutions and merchant solutions. Subscription solutions allow subscribers (primarily merchants) to conduct business through Shopify's tools, while merchant solutions help businesses become more efficient via Shopify Payments, Shopify Shipping, and Shopify Capital.
The company has been persistently labeled "overvalued" by analysts and investors throughout its history, but prior to its large scale correction in 2022, it had never disappointed.
Now, the company is seeing slowing growth. But this is to be expected as companies emerging from the early-stage growth phase can rarely keep pace with past growth. The company and its CEO Tobi Lutke have been the first to admit they forecasted way too much growth in 2022 and beyond due to the pandemic.
The company's theory was that 5+ years of e-commerce growth would be pulled into 2022, suggesting the pandemic had shifted consumer shopping habits permanently. It missed the mark on that projection by a wide amount and as a result, the market has hammered it. However, it is still one of the fastest growing companies of its size in North America.
In terms of enterprise value to revenue, Shopify is currently trading at the cheapest valuation in its history. The company would certainly still be deemed "expensive" when we look at the general market. But overall, there hasn't been a cheaper time to buy Shopify, ever.
If you don't have a quick trigger finger in terms of selling stocks, in my opinion, there will be few investors who are disappointed 5-7 years down the road if they bought Shopify even at these levels. Just be prepared for a lot of bumps in the road.
The company is still growing rapidly and has a large cash balance to reinvest in its business.
8. Telus (TSE:T)
There are limited 5G plays here in Canada. We're often forced to head down south to the American markets if we want exposure to high-growth 5G opportunities. While Telus (TSE:T) doesn't exactly boast world-beating future potential, the stock is the best telecom stock to own in the country today in terms of both 5G exposure and overall growth.
Telus is part of the Big 3 telecom companies here in Canada, and is the stock you want to buy if you want exposure to a more pure-play telecom company. Unlike Rogers Communications and BCE, Telus doesn't have a media division and instead has invested in business models that drive higher margins like telehealth and security.
This should allow Telus to not only grow its dividend but should also allow it to drive strong top and bottom-line growth.
The last 5 years have not been favorable to Canadian telecoms in terms of growth. In fact, Telus has only grown revenue by 3.7% annually over the last 5 years and earnings have remained relatively flat.
However, the environment has completely changed for these companies. Telecom infrastructure is difficult to construct and extremely costly. On one hand, this is a huge benefit to a company like Telus. Unless they're willing to share towers, it creates a barrier to entry that is almost impenetrable.
On the other hand, however, it makes the development of new infrastructure extremely expensive, and telecom companies often carry a large amount of debt to do so. Case in point, trying to keep pace when it comes to 5G development.
When interest rates are high, we can expect these companies to struggle. However, now that we are in a low-interest-rate environment, these companies have been investing heavily back into the business. Even as rates increase, they're still at relatively low levels. We will likely see most telecoms scale back capital expenditures as a result of the rising rates, but Telus should be able to continue to fuel growth even in this environment.
Analysts feel the same, as they are predicting double-digit earnings growth for Telus and mid to high single-digit revenue growth over the next couple of years. This is the fastest expected growth rate out of all 3 major telecom companies.
The company's economic moat, pricing power, and it being one of the best Canadian dividend stocks in the country make it a no-brainer on this list.
7. Parkland Fuels (TSE:PKI)
Parkland Fuels (TSE:PKI) is one of Canada's largest and one of North America's fastest growing independent marketers of fuel and petroleum products. Parkland serves motorists, businesses, consumers, as well as wholesalers across Canada and the United States.
The company’s growth is primarily driven through acquisitions, evident by its purchase of Chevron Canada’s downstream fuel business making them the sole distributor for Chevron branded fuels.
Speaking of acquisitions, recently the company entered the frozen food business with the purchase of M&M Foods. The acquisition is certainly a new avenue for growth for Parkland, and it will be very interesting to see how it works out.
Another positive from the company's acquisition-heavy strategy is the fact that a variety of brands allows it to distribute its products to a wide range of markets across North America.
Prior to the pandemic, Parkland had some outstanding growth. In fact, it was one of the fastest-growing mid-cap stocks in the country. But, the pandemic hit the company hard as travel activity collapsed in the midst of shutdowns. It certainly didn't help its refining business either, as the price of crude oil inevitably collapsed as a result of the lack of travel.
Despite recoveries from many other players in the industry like Alimentation Couche-Tard, at the time of writing Parkland still remains significantly below its pre-COVID valuations. The market seems to be having a hard time valuing this company, and for long-term investors, it is certainly an attractive proposition. We think the main thing keeping Parkland Fuel's share price low is the company's debt levels. But, it has navigated this type of interest rate environment plenty of times before.
Considering the company pays a healthy dividend, I think it would be a mistake for Canadians not to at least consider this stock, or add it to a watchlist. The company is a Canadian Dividend Aristocrat having raised dividends for 9 straight years and pays its dividend on a monthly basis, making it even more attractive to Canadian investors wanting a steady income stream.
As long as the company can maintain its dividend and continue to be in a strong position to grow moving forward, we'll be patient and let it recover from this unprecedented pandemic.
6. Goeasy Ltd (TSE:GSY)
Over the last half-decade, there's been an emergence in a particular niche industry in the financial sector, and that is alternative lenders. One of the best Canadian stocks in that niche? Goeasy Ltd (TSE:GSY).
Goeasy Ltd is a small-cap Canadian stock that provides non-prime leasing and lending services through its easyhome and easyfinancial divisions. The company has issued $5+ billion in loans since its inception.
It also continually works to increase Canadian borrowers' credit scores, with 60% of customers increasing their credit scores less than 12 months after borrowing.
The company provides loans for a wide variety of products including furniture, electronics, and appliances. Goeasy has become an attractive alternative for Canadians due to strict lending restrictions placed on Canada's major financial institutions.
A lot of investors view Goeasy's business model as predatory. If something doesn't adhere to your principles, don't invest in it. Much like tobacco or alcohol, some investors aren't willing to support companies with such products. But you can't deny that what Goeasy is doing is working, and it's working well.
Since 2001, Goeasy has grown revenue at a 12%~ compound annual growth rate. In fact, the company has never had a year since 2001 where revenue was flat or lower than the year prior. If we look towards recent years, from 2015 to 2020 the company doubled revenue, and in 2021 strong double-digit growth continued. This confirms the fact that alternative lenders are catching on in a big way.
Even more impressive is the company's earnings, as net income since 2001 has grown at a pace of 30%~ annually. To grow net income at a compound annual rate of more than 30% over 2 decades just highlights how strong this company has been.
The company is also growing its dividend at one of the fastest rates in the country. The company has a 35% 5-year annual dividend growth rate and has raised dividends for 7 consecutive years, including the most recent increase of 45%. With its payout ratio being in the low teens, this dividend growth is unlikely to slow down.
Many investors are speaking of impending doom for Canada's alternative lenders. Much like they did during the dot-com bubble and the financial crisis. After both of these catastrophic economic events, Goeasy is still here and is still growing. Overall if you're looking for a higher growth play in the financial sector, I don't think there is a better option than goeasy Ltd. The company has a price target in excess of $200 at the time of writing.
5. Dollarama (TSE:DOL)
In the current economic climate, defensive stocks have gained a ton of popularity. One of the most prominent consumer defensive stocks in the country is Dollarama (TSE:DOL).
The company provides a broad range of everyday consumer products, general merchandise, and seasonal items, with merchandise at low fixed price points. General merchandise and consumer products jointly account for the majority of the company's product offerings. The company's stores are throughout Canada, generally located in convenient locations, such as metropolitan areas, midsize cities, and small towns.
Its wide exposure and cheap product base make it perfect for Canadians looking to pinch pennies during poorer economic climates. And this has certainly been the case this year, as the company is showing absolutely no signs of a slowdown, despite many other retailers warning about inventory backlogs and margin impacts.
While many retailers are warning of slowing growth, Dollarama is expected to continue its pace of double-digit growth even in the midst of recessionary fears. It is not seeing a slowdown in consumer activity. In fact, it's even seeing a higher average basket price than pre-pandemic, suggesting many shoppers are potentially utilizing Dollarama over other stores for basic goods.
Analysts figure the company will grow both revenue and earnings at a double-digit clip in both Fiscal 2023 and Fiscal 2024. At the time of writing, the stock is somewhat fully valued in my opinion. However, if it continues to perform and other retailers lag, Dollarama may start to get even more interest from potential investors who want somewhat of a safe-haven retailer during an economic downturn.
4. TFI International (TSE:TFII)
TFI International (TSE:TFII) is a stock we covered extensively at Stocktrades Premium, especially during the peak of the COVID-19 pandemic, and the company has more than quadrupled off those lows.
TFI is a trucking and logistics company. The company operates in four segments: Package and Courier, Less-Than-Truckload, Truckload, and Logistics. Along with 31,000 employees, it has over 500 terminals across North America. The company has operations in the United States and Canada.
Following its recent acquisition of UPS’s Less-Than-Truckload freight business in 2021 the bulk of its revenue, almost 75%, will come from the US.
So why were we extremely bullish on TFI during the pandemic over at Stocktrades Premium, and why are we still bullish on them despite the huge price increase even in 2022?
While mass panic selling was occurring, TFI International's stock was not immune to the sell-off. The stock quickly plummeted in March 2020, hitting the $24 range. Fast-forward a year and the stock is currently trading in the $125 range at the time of writing.
With the strong financial position the company was in, it went on the hunt for struggling companies and ended up purchasing Gusgo Transport, Fleetway Transport, CCC Transportation, APPS Transport, Keith Hall & Sons, assets of CT Transportation, the dry bulk assets of Grammer Logistics, and assets of MCT Transportation, DLS Worldwide, and the aforementioned UPS Freight business.
Yes, it’s a lot. CEO Alain Bedard was very busy putting a strong balance sheet to work. TFI took advantage of the situation and bought assets at discounted rates, highlighting the ability of its management which looks to have set the company up to outperform for many years to come.
And as synergies from new acquisitions take hold, it will no doubt spur growth moving forward. The UPS Freight acquisition is transformational for the company. As mentioned, TFI International will now be more weighted towards business in the US, as opposed to the past when most revenues came from Canada.
When TFI International purchased UPS Freight, it was roughly breakeven, with margins around 1%. Management has stated they think they will improve margins to 10%, which will provide a lot of earnings growth to go along with the revenue growth.
This growth in profits should allow TFI International to continue growing its dividend. The company has a 11-year dividend growth streak and has raised dividends at a 9.9% clip annually over the last 5 years.
It doesn't yield much, hovering around 1% or even sometimes sub 1%, but with the dividend payout ratio making up less than 20% of trailing earnings, it should have plenty of room to grow.
Do we fear a recession? Absolutely not. Although it would no doubt impact TFI's share price, we'd be happy to accumulate shares for cheaper for as long as the market gave us the opportunity.
3. Loblaw (TSE:L)
The main fear in 2022 and beyond is a recession. If this were to happen, we'd likely see more volatility in the near term. As a result, we want companies that are going to be able to maintain revenue and earnings if an economic downturn were to occur.
And, there arguably is not a better company in the country to do so than Loblaw (TSE:L). Loblaw is one of Canada’s largest grocery, pharmacy, and general merchandise retailers, operating the most expansive store footprint in Ontario and maintaining sizable presences in provinces like Quebec and British Columbia.
Key grocery banners include Loblaw, No Frills, and Maxi, while its pharmaceutical operations are the product of its 2014 acquisition of Shoppers Drug Mart.
Regardless of the economic circumstances, humans need groceries. Without food and water, we don't survive. And when times get tough, we tend to pinch pennies. The distinct advantage Loblaw has is the fact it has a much higher "discount" element to it than other grocers like Empire Company and Metro, particularly its No Frills brand. And although they do have some intersection in terms of products, another discount retailer like Dollarama is unlikely to take significant market share.
The company also has one of the largest economic moats of any grocer in the country. in fact, 90% of Canadians live within 10KMs of a Loblaw store. This isn't a flashy company by any stretch of the imagination. It doesn't boast massive margins or large-scale growth. However, we've witnessed in the latter half of 2021 and 2022 that sometimes reliable cash flow takes priority over surging growth.
It pays a dividend, but one that will typically hover in the low to mid 1% range. However, dividend growth is strong, with a decade-plus dividend growth streak and mid-single-digit dividend growth on average over the last 5 years.
The company is expected to grow earnings in the mid-single-digit range over the next few years and revenue in the low single digits. Overall, we see it as a very strong consumer defensive option in a volatile market.
2. Canadian Natural Resources (TSE:CNQ)
It's been a very long time since we've included a cyclical option on our list of top Canadian stocks to buy. But, there is no doubt oil is making a resurgence, and it's likely strong oil prices remain well into 2023 and beyond.
And, if we're looking to make an investment based on oil, we'd personally like to own the best-in-class producer in North America. We believe that producer to be Canadian Natural Resources (TSE:CNQ). Look back over the last ten years, and you'll be hard-pressed to find a better performing major oil stock than Canadian Natural Resources.
Now, that isn't to say its performance has necessarily been good, as the oil and gas sector has provided abysmal returns for a very long time now. But, it's been the best of a bad bunch. And, now that oil has made a comeback, it could very well rise from the ashes and become one of the best-performing stocks on the TSX Composite Index.
Canadian Natural is one of the most efficient companies in the industry. With breakeven prices in the $30 WTI range, the company can maintain positive cash flows in almost every environment. In fact, despite oil prices seeing one of the largest collapses in their history in 2020, Canadian Natural still produced over $2.2B in free cash flow in Fiscal 2020.
It was for this reason that the company was not only able to maintain the dividend in 2020, but while other major producers like Suncor Energy were cutting their payouts, Canadian Natural Resources came through with a dividend raise to extend its multi-decade dividend growth streak.
If WTI prices can be maintained at the $70~ range over the next 2-3 years, Canadian Natural and investors stand to benefit. Although the "home run" style price levels are likely long past us, don't make this the reason you ignore Canadian Natural right now. The company still has upside potential in terms of share price, but the most attractive thesis for the company is its dividend.
Cyclical options are not long-term holds. Unless you want to underperform that is. Many investors in the oil and gas industry know this. And, they also know that the industry is not exactly on the up and up. So for this reason, many investors expect oil companies to return cash flow back to investors in the form of a dividend or share buybacks instead of spending cash flow on expansion.
This should result in some hefty dividend increases and share appreciation via buybacks. These two reasons are exactly why Canadian Natural has cracked the top 3 of our best Canadian stocks to buy in 2022 and beyond.
1. Royal Bank of Canada (TSE:RY)
Considering this list is primarily growth stocks, it did feel somewhat weird including The Royal Bank of Canada (TSE:RY).
However, this Canadian bank stock is simply too good right now to not be included on a list of the best stocks to buy in Canada.
Royal Bank is a global enterprise with operations in Canada, the United States, and as we'll see the importance of later, 40 other countries. When it comes to international banking, there isn't a bank with more exposure.
It is also a well-diversified bank, with personal, commercial, wealth management, insurance, corporate, and capital market services.
The company is Canada's most valuable brand and has been for the last 6 years. It is also currently the largest bank in the country. It lost its title of Canada's largest company to Shopify during the tech frenzy in 2020 and 2021. But, as it has done for a very long time, it regained its crown at the start of 2022 with a market capitalization in excess of $175B.
On average over the last 5 years, the company has grown revenue and earnings by mid-single digits. Not bad for the largest company in the country. And with a dividend yield in the 4% range along with a 11-year dividend growth streak, RBC is one of the best dividend payers in the country.
The Canadian banking industry is one of the strongest investment sectors in the world, highlighted by the fact that no Big 5 financial institution cut their dividend during the 2008 financial crisis, and no Big 5 institution cut during the COVID-19 pandemic.
In fact, as soon as regulatory agencies allowed major institutions like the Bank of Montreal, Bank of Nova Scotia, Toronto-Dominion Bank, National Bank of Canada, Canadian Imperial Bank of Commerce, and Royal Bank to raise the dividend, they did so almost immediately.
One question many are asking was why did Royal Bank fare better than most during the pandemic? Well, this is primarily due to the fact it has the most global exposure out of any of the other banks.
This allowed it to be exposed to a multitude of economies at different stages of recovery. Compare this to a bank like Toronto Dominion, which almost has all of its revenue exclusively in Canada and the United States.
The bank lagged in 2021, especially when we look at the 45%+ returns we saw from BMO. But as history has shown, the worst-performing bank of the previous couple of years often rebounds to be one of the best-performing moving forward.
The financial correction in Canada in 2022 is, in our opinion, an overreaction. In volatile markets, we often find strong entry points for some of the best companies in the country. We feel Royal Bank is one of those, and could be a strong add to your portfolio.