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Canadian stocks are down 14% this year and the decline doesn’t seem to be over yet. Macro concerns will continue to weigh on markets towards the end of the year, making stock selection all the more important. So here are three TSX stocks that could outperform.
Very few TSX stocks have withstood the immense volatility this year. Dollarama (TSX:DOL) is one such name that has not only remained resilient but has managed to outperform the markets this year. It has returned 26% this year, outperforming TSX stocks in particular.
Note that Dollarama is likely to continue to outperform as stocks trade more volatile and inflationary pressures increase. Its unique business model and stable earnings growth fare well in inflationary environments.
Dollarama’s value proposition and long-standing relationships with global suppliers bode well for its business growth. In addition, the larger number of branches in Canada gives it a great competitive advantage over its competitors. By 2031, Dollarama plans to increase the number of its stores from the current 1,430 to 2,000, which is expected to accelerate its long-term financial growth.
Dollarama stock, in particular, has outperformed over both the short and long term, making it a viable bet for an all-weather portfolio.
Canada’s natural gas producers will likely be the focus for the next few years as the world grapples with energy supply problems. tourmaline oil (TSX:TOU) is Canada’s largest natural gas producer and is targeting to produce 505,000 barrels of oil equivalent in 2022.
In particular, higher production and sky-high gas prices boosted earnings significantly this year. The trend is likely to continue amid the war in Europe, making Tourmaline one of the most compelling bets on TSX Energy.
Tourmaline has delivered massive returns over the past few quarters thanks to its stellar free cash flow growth. At the end of 2020, it had total debt of $1.9 billion, which fell to just $470 million last quarter. That’s a remarkable balance sheet improvement. Lower debt lowers interest expense and increases profitability.
Tourmaline has announced special dividends on three occasions this year, demonstrating its tremendous financial strength and earnings visibility. The stock has returned 85% over the trailing 12 months, easily beating the competition.
After two growth tips, my third is a defensive bet: fortis (TSX:FTS)(NYSE:FTS). As recession fears have increased in recent quarters, the spotlight will be on the defensives.
What sets Fortis apart in the current markets is its earnings and dividend stability. Even if the economy and markets take an ugly turn from here, Fortis is likely to grow steadily as it has in the past. For this reason, market participants are switching to utility stocks such as FTS in the face of increasing market uncertainty.
FTS shares currently yield slightly more than the broader markets at 3.6%. Investing $1,000 in FTS stock will pay $35 in dividends in a year.
Note that Fortis has one of the longest dividend growth streaks at 48 straight years. Its strong balance sheet and earnings transparency allow for such a long payout streak regardless of the overall economy.