Written by Rajiv Nanjapla at The Motley Fool Canada
Despite healthy buying over the last few days, the S&P/TSX Composite Index closed the quarter in red, losing around 1.6% of its value. Historically, September has been the worst-performing month for equity markets. Considering these factors, the following two stocks would be an excellent buy this month to earn superior returns.
First on my list is Dollarama (TSX:DOL), a defensive stock with a growth tilt. The company has an extensive presence across Canada, with 85% of Canadians having a store within 10 kilometres. It offers a wide range of consumer products at attractive price points, thus aiding the company in growing its financials.
Over the last 13 years, the discount retailer has increased its revenue at 10.6% CAGR (compound annual growth rate). It has also witnessed an expansion in its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin from 16.5% in 2011 to 28.3% in the April-ending quarter. Supported by its strong financials, the company has delivered around 1,650% returns over the last 12 years at a CAGR of 26.9%. The company has maintained its upward momentum this year, with its stock price trading 10.9% higher.
Notably, Dollarama’s growth prospects look healthy, with the company planning to add around 60-70 stores each year to increase its store count to 2,100 by 2031. It is strengthening its direct procurement capabilities to provide its customers with attractive value offerings. The company also focuses on enhancing customer experience by growing its digital reach and optimizing its check-out process. Further, the increase in the contribution from Dollarcity, where the company has a 50.1% stake, amid its expansion plans could boost its net earnings. Considering its growth prospects and solid underlying business, I believe Dollarama would be an excellent buy this month.
Canadian Natural Resources
After bottoming out at US$81.97/barrel, Brent crude has witnessed a strong recovery over the last few days, with prices rising around 6%. The decline in the United States crude inventories, favourable comments by the Federal Reserve on the United States economy, and an expectation of Saudi Arabia and Russia continuing with their production cuts have boosted oil prices. Meanwhile, analysts are projecting Brent crude to remain elevated in the near to medium term.
Higher oil prices could benefit oil-producing companies, including Canadian Natural Resources (TSX:CNQ), which is my second pick. The company has projected to invest around $5.4 billion this year, strengthening its asset base. Supported by these investments and strong organic growth, the company’s management projects its total production to come between 1,330,000 barrels of oil equivalent per day and 1,374,000 barrels of oil equivalent per day, with the midpoint representing a 5.5% growth from its 2022 levels.
The oil and natural gas producer has rewarded its shareholders by repurchasing around $4.3 billion worth of shares this year as of August 2. It has also raised its quarterly dividend for the last 23 years, with its forward yield at 4.12%. Amid its strong cash flows, the company has dragged its net debt down to $11.9 billion. Once its net debt falls below $10 billion, the company expects to return 100% of its cash flows to its shareholders. It trades at an attractive next 12-month price-to-earnings multiple of 11.2, making it an attractive buy.
Before you consider Canadian Natural Resources, you'll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023... and Canadian Natural Resources wasn't on the list.
The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 26 percentage points. And right now, they think there are 5 stocks that are better buys.
See the 5 Stocks * Returns as of 8/16/23