The S&P/TSX Composite Index consists of 237 of the best Canadian stocks traded on the Toronto Stock Exchange. These companies represent approximately 95% of the Canadian equities market.
As of Sept. 8, the index was down 8.9% in 2022. That’s almost half the decline of the S&P 500 over the same time period. Over the long haul, however, there is no comparison between the S&P 500 and the S&P/TSX Composite. The S&P 500 is up 62% over the past five years, more than double the gain of S&P/TSX Composite.
Despite the long-term underperformance of the S&P/TSX Composite, some of the best Canadian stocks in the index are also among the best stocks for all investors.
When I was selecting the best Canadian stocks to buy now, I considered the companies in the index that have market capitalizations of at least $5 billion, sound balance sheets, and good growth prospects.
| TIXT | Telus International | $30.13 |
| STN | Stantec | $49.13 |
| DOOO | BRP | $71.08 |
| RBA | Ritchie Bros. Auctioneers | $68.46 |
| TFII | TFI International | $104.59 |
| WCN | Waste Connections | $146.40 |
| CVE | Cenovus Energy | $18.43 |
Telus International (TIXT)
Telus International (NYSE:TIXT) was spun off from its telecom parent, Telus (NYSE:TU), in February 2021. Telus sold approximately 33% of Telus International to investors in an IPO. Telus International’s digital customer experience systems help more than 600 global clients provide exceptional digital systems to their customers. Telus continues to control 70.9% of Telus International’s voting stock.
Telus International reported its Q2 results in early August. Excluding currency fluctuations, its revenue increased 21% year-over-year to $624 million. Its earnings before interest, taxes, depreciation and amortization (EBITDA), excluding some items, increased 15% YOY to $150 million.
For all of 2022, Telus expects its revenues to climb 16.2% to at least $2.55 billion, and it predicts that its adjusted EBITDA will come in at $612 million.
Analysts generally like TIXT. Of the 15 analysts who cover Telus International, 11 rate it as either a “buy” or an “overweight. ” Analysts’ average 12-month price target on the shares is $33.71.
I like Telus International because its huge, global addressable market is worth more than $225 billion, and it has a great deal of room to expand overseas. That’s because just 14% of its current customers are based in Europe or Asia.
Stantec (STN)
Stantec (NYSE:STN) is a provider of engineering, architecture, and environmental services to clients in the U.S., Canada, and elsewhere. The company has 400 offices and more than 25,000 employees worldwide.
In Q2, Stantec’s revenue climbed 22.9% YOY to 1.1 billion Canadian Dollars ($840.33 million), while its contract backlog came in at 5.8 billion Canadian Dollars ($4.43 billion), 13% higher than at the end of December. The revenue of all three of its geographic regions rose YOY during the quarter.
As for net income, its bottom line, excluding certain items, increased 33% YOY, to 23 million Canadian Dollars ($17.6 million). Its net income, excluding some items, accounted for 8.3% of its revenue in the quarter, six percentage points higher than during the same period a year earlier.
I like the company for several reasons.
Its backlog has never been higher, and its outlook has never been stronger. One factor contributing to its positive position is its infrastructure-related projects that are happening as a result of the Bipartisan Infrastructure Law passed by the U.S. Congress last year
In addition, all five of Stantee’s operating units — Infrastructure, Water, Buildings, Environmental Services, and Energy & Resources — generated healthy, double-digit-percentage revenue growth, excluding the impact of acquisitions, last quarter.
Lastly, Stantee continues to buy back its stock. In Q2, it repurchased 625,019 of its shares for 36.7 million Canadian Dollars ($28.04 million). In the first half of 2022, it repurchased 1.09 million of its shares for 65.3 million Canadian Dollars ($49.9 million).
BRP (DOOO)
BRP (NASDAQ:DOOO) is a Quebec-based manufacturer of powersports vehicles. Its leading brands include Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft, Can-Am Off-Road and On-Road vehicles, Rotax engines, and Alumacraft boats.
In early June, it reported its fiscal Q1 results. Rather than focusing on the quarterly results, investors should consider its updated guidance. For all of FY23, the midpoint of its guidance indicates that its revenue will grow by 26.5% YOY, powered primarily by strong increases in the sales of its year-round and seasonal products. On the bottom line, the midpoint of BRP’s guidance indicates that its earnings per share will increase by 12.5%.
There are two reasons why BRP continues to be one of the best stocks in the leisure space.
First, it is still grabbing market share in the all-terrain vehicle (ATV) and side-by-side vehicle (SSV) markets in North America, despite its problems keeping up with the demand for its products.
In BRP’s presentation for its Investor Day, held in June, it pointed out that the market share of its Can-Am SSVs had increased by six percentage points between 2019 and April 2022. At the same time, its shares of the global snowmobile and personal watercraft markets are above 60%, setting all-time records in both categories. BRP is firing on all cylinders.
Secondly, BRP intends to electrify at least one model from each product line by 2026. By 2035, it expects electric products to account for at least 50% of its total sales. In August, it announced that it would launch two, all-electric, two-wheel motorcycles and an all-electric Sea-Doo hydrofoil board by the middle of 2024.
Ritchie Bros. Auctioneers (RBA)
Ritchie Bros. Auctioneers (NYSE:RBA) dates back to 1958 when it was founded in British Columbia. As its name suggests, it got its start with live auctions of furniture. It moved to industrial auctions in 1963. Last year, it auctioned more than $5.5 billion of commercial assets online.
Despite the company’s tentative acquisition of Euro Auctions UK Ltd. getting rejected by UK regulators in March, business continues to be quite brisk for Ritchie Bros.
In Q2, its revenue increased 22% to $484.5 million, while its EBITDA, excluding some items, rose 11% to $136.2 million. Also in the quarter, its gross transaction value (GTV) increased 10% to $1.7 billion. In the first half of 2022, its GTV rose 11% YOY to $3.1 billion.
Analysts have mixed outlooks on the company’s stock. The average rating of the ten analysts who cover RBA is a “hold,” while their average price target is $68.67, not much higher than where it closed on Friday.
I like RBA because its auction services will always generate strong demand.
TFI International (TFII)
As the company’s investor relations site states, “TFI International (NYSE:TFII) is a North American leader in logistics and transportation. We are diversified across multiple geographies, industry verticals and business segments, including Package and Courier, Less-Than-Truckload, Truckload and Logistics.”
Over the past three years, the annualized total return of TFII stock is 53.59%, more than six times higher than the annualized return of the entire Canadian stock market during the same period.
The company has grown over the years through a combination of organic growth and acquisitions. In 2021, it acquired UPS Ground Freight Inc. for $800 million, greatly expanding its presence in the North American ground freight industry. TFI has completed 107 acquisitions since 2008.
In Q2, its sales jumped 32% YOY to $2.42 billion. On the bottom line, its net income, excluding certain items, increased 76% to $276.8 million. Its free cash flow during the quarter was $690.9 million. TFI managed to convert 88.1% of its adjusted EBITDA from continuing operations into free cash flow.
There is nothing wrong with its business at the moment.
Analysts love TFII stock. Out of the 20 who cover it, 17 have “buy” or “overweight” ratings on it, with an average target price of $120.10.
As long as CEO Alain Bedard is running the company, its shareholders are in very good hands.
Waste Connections (WCN)
Waste Connections (NYSE:WCN) is one of the largest waste management companies in North America, serving more than 8 million residential, commercial, and industrial customers in six Canadian provinces and 43 U.S. states.
Waste Connections has delivered 18 consecutive years of positive shareholder returns and 11 years of double-digit-percentage dividend increases. The stock’s average total return over the past decade is 22.57%, almost three times the average total return of the entire Canadian market.
In Q2, Waste Connections’ revenue rose 18.4% YOY to $1.82 billion, while its EBITDA, excluding some items, increased by 16.9% to $566.8 million. Like TFI International, Waste Connections is very acquisitive.
As a result of its healthy revenue gain in Q2, WCN raised its 2022 outlook. It now expects revenues of $7.13 billion, $250 million higher than its previous guidance, and it projects free cash flow, excluding certain items, of $1.16 billion.
Waste Connections ought to be on your watchlist because it returns a great deal of money to its shareholders. Since the firm initiated its dividend in 2010, its payout has increased at a compound annual growth rate of 15%. Meanwhile, WCN’s share repurchases are expected to increase if it starts spending less money on acquisitions.
Cenovus Energy (CVE)
Cenovus Energy (NYSE:CVE) is the third-largest Canadian oil and gas producer, and the country’s second-largest refiner. In 2022, it expects to produce 795,000 barrels of oil equivalent per day (MBOE/d). CVE has proved and probable reserves of 8.3 billion barrels of oil equivalent.
On June 13, Cenovus announced that it would acquire the 50% of the Sunrise oil sands project in Northern Alberta that it didn’t already own for $600 million of cash upfront and an additional variable payment of up to $600 million over two years. Cenovus is buying the 50% stake from BP (NYSE:BP).
“Acquiring the remaining working interest in Sunrise enables us to fully benefit from the significant optimization opportunities available,’” said Cenovus CEO Alex Pourbaix in a statement.
Among the company’s highlights in Q2 were a 20% YOY increase in its adjusted funds flow to 3.10 billion Canadian Dollars ($2.38 billion), a 50% YOY gain in its net earnings to 2.4 billion Canadian Dollars ($1.87 billion), and a 10% reduction in its net debt.
Most analysts love CVE stock. Fifteen out of 17 analysts covering the name rate it a “buy.” Their average price target is $25.72
There’s no question that CVE is one of the best-run oil and gas companies in North America. The shares are also very inexpensive, as they’re trading at 6.1 times the company’s free cash flow.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.