In this article, we discuss 10 Canadian stocks to buy amid rate hikes. If you want to see more stocks in this selection, check out 5 Canadian Stocks to Buy Amid Rate Hikes.
The rising rates environment has hit Canada too, and on June 1, The Bank of Canada raised its target for the overnight rate to 1½%, with the Bank Rate at 1¾% and the deposit rate at 1½%. The Bank of Canada also intends to continue with its ongoing quantitative tightening policy. Rising inflation is a global issue, and Canada is not immune to it. The CPI inflation in Canada was 6.8% in April, which was decidedly ahead of the Bank’s predictions. This number reached a 31-year high.
The rising rates will impact the housing market and the Canadians who are highly in debt. After a second 50-basis point increase consecutively, The Bank of Canada is willing to act “more forcefully” if required. As per Senior Deputy Governor Carolyn Rogers, home prices have fallen sharply and housing demand has declined from record levels, however, more than just the housing market needs to be considered when adjusting rates. The target will always remain to control inflation numbers.
According to The Bank of Canada, the housing market has become unreasonably strong and a moderation amid rate hikes is necessary. Bank of Canada governor Tiff Macklem also believes that higher rates are needed in the country, and the economy is robust enough to survive the tide.
While investors usually gravitate towards Canadian stocks like Suncor Energy Inc. (NYSE:SU), Enbridge Inc. (NYSE:ENB), and B2Gold Corp. (NYSE:BTG), we discuss some of the most notable stocks to buy amid rate hikes in this article.
Photo by Chris Liverani on Unsplash
Our Methodology
We selected Canadian stocks from sectors that generally thrive amid a rising rates environment, including insurance, asset managers, banks, and diversified financials. We ensured that the stocks recently received positive analyst ratings, and displayed strong business fundamentals. Insider Monkey’s Q1 database of 900+ elite hedge funds was used to gauge the hedge fund sentiment around the stocks.
Canadian Stocks to Buy Amid Rate Hikes
10. Brookfield Asset Management Inc. (NYSE:BAM)
Number of Hedge Fund Holders: 35
Brookfield Asset Management Inc. (NYSE:BAM) is a Canadian multinational company that operates as an alternative asset manager, focusing on real estate, renewable power, infrastructure, venture capital, and private equity assets. On May 12, Brookfield Asset Management Inc. (NYSE:BAM) reported earnings for Q1 2022, posting an EPS of $0.81 and a revenue of $22.75 billion, topping analysts’ estimates by $0.11 and $4.41 billion, respectively. The revenue grew about 28% year-over-year.
On May 20, RBC Capital analyst Geoffrey Kwan maintained an Outperform rating on Brookfield Asset Management Inc. (NYSE:BAM) but lowered the price target on the stock to $68 from $72. The analyst sees the company’s Q1 results “positively” as it disclosed plans to spin off its asset management business and reported that its fundraising outlook is quite robust, which bodes well for upcoming fee-related earnings growth. Brookfield Asset Management Inc. (NYSE:BAM) delivers an attractive blend of positive fundamentals and potential catalysts, the analyst added.
According to Insider Monkey’s database, 35 hedge funds were bullish on Brookfield Asset Management Inc. (NYSE:BAM) at the end of March 2022, up from 29 funds in the prior quarter. Billionaire Andreas Halvorsen’s Viking Global held the largest position in the company, comprising 16.30 million shares worth $922.3 million.
Like Suncor Energy Inc. (NYSE:SU), Enbridge Inc. (NYSE:ENB), and B2Gold Corp. (NYSE:BTG), elite hedge funds are piling into Brookfield Asset Management Inc. (NYSE:BAM).
Here is what Baron Durable Advantage Fund has to say about Brookfield Asset Management Inc. (NYSE:BAM) in its Q1 2022 investor letter:
“During the first quarter, we initiated one new investment: the alternative asset manager, Brookfield Asset Management (NYSE:BAM). We also utilized the market correction to add to 4 existing positions in which our conviction level has increased: Alphabet, Accenture, Ecolab and Nice. Lastly, we reduced 22 positions and liquidated 3 others as we further consolidated the portfolio in our higher conviction ideas.
We acquired a new position in Brookfield Asset Management Inc. during the first quarter. Brookfield is one of the largest alternative asset managers in the world focused on infrastructure, real estate, credit, and private equity investments and has approximately $700 billion of assets under management. We have admired what CEO Bruce Flatt and his managing partners, all of whom have significant equity ownership in the business, have accomplished over the last 20-plus years with the shares compounding at a 20% annualized rate driven by the growing allocation to real assets and alternatives (which have grown from about 5% of portfolios in 2000 to 30% in 2021) while maintaining a conservative balance sheet with downside protection.
We believe Brookfield remains well-positioned for continued solid growth due to: i) secular growth opportunity in the alternative asset management space as a “fixed income alternative” with the top 10 asset managers capturing a bigger portion of the pie; and ii) Brookfield’s ability to take share due to its superior investment track record, global reach and operating platform, and scale and diverse product offering. Lastly, we believe management is intent on maximizing the value of its asset management arm or pure “fee business” with a plan to spin-out this business in the near future. We have long believed that Brookfield’s asset management business
has been under-appreciated in the public market due to the complex structure of the company with its on-balance sheet investments. Brookfield’s closest peers that have pure “asset-light” business models are trading at material premiums in the public markets and we believe there is a minimum of 30% value upside on in-place earnings solely through this value crystallization event (not taking into consideration any future growth). In addition, management has laid out a credible plan at its most recent investor day to more than double AUM over the next five years, which we believe will result in material equity value creation.”
9. Canadian Imperial Bank of Commerce (NYSE:CM)
Number of Hedge Fund Holders: 16
Canadian Imperial Bank of Commerce (NYSE:CM) is a Toronto-based diversified financial institution that operates through four strategic segments – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets.
On May 26, Canadian Imperial Bank of Commerce (NYSE:CM) posted earnings for Q1 2022. The company announced an EPS of $1.39, topping market consensus estimates by $0.05. The revenue of $4.21 billion also exceeded Street forecasts by $62.42 million.
National Bank analyst Gabriel Dechaine raised the price target on Canadian Imperial Bank of Commerce (NYSE:CM) to C$84 from C$83.50 and maintained an Outperform rating on the shares.
Among the hedge funds tracked by Insider Monkey, 16 funds reported long positions in Canadian Imperial Bank of Commerce (NYSE:CM) at the conclusion of Q1 2022, with collective stakes worth $247.5 million. Joseph Sirdevan’s Galibier Capital Management is the leading shareholder of the company, with 548,979 shares worth $66.6 million.
Here is what ClearBridge Investments International Growth EAFE Strategy has to say about Canadian Imperial Bank of Commerce (NYSE:CM) in its Q1 2022 investor letter:
“We also added Canadian Imperial Bank of Commerce (NYSE:CM), which should benefit from a consolidating bank market and higher rates as Canada catches up with the U.S. in terms of reopening and GDP growth recovery.
These recent adds complement our financials exposure in Europe. While sensitive to the macro environment, European banks have already taken a serious hit and trade at levels implying stagflation or a technical recession. Higher rates will help the banks and their capital levels are high across the entire sector. Provisioning reserve releases are unlikely from here and perhaps faster buildup is needed again for future losses in the years to come, but we believe these headwinds are already priced in.”
8. Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)
Number of Hedge Fund Holders: 13
Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) was founded in 1958 and is headquartered in Burnaby, Canada. The company specializes in asset management and disposition, selling industrial equipment and other assets via unreserved auctions, digital marketplaces, listing services, and brokerage services. Amid rate hikes, lending is quite expensive and businesses usually prefer to generate cash by disposing off underearning or unused assets, which bodes well for companies like Ritchie Bros. Auctioneers Incorporated (NYSE:RBA).
The company reported earnings for Q1 2022 on May 9, reporting earnings per share of $0.46 and a revenue of $393.92 million, outperforming market consensus estimates by $0.18 and $49.77 million, respectively. The GAAP EPS of $1.60 also exceeded Street predictions by $1.44.
On May 13, BofA analyst Michael Feniger upgraded Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) to Neutral from Underperform, lifting the price target to $61 from $51, as part of a larger thesis on Machinery/E&C/Waste. The analyst stated that Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)’s Q1 results were “encouraging”, with organic service revenue growth of 17%, which was “impressive” considering the thin supply of used equipment. The analyst added that Q1 was the first quarter in some time where SG&A expenses were lower than forecasts after many investments in 2021.
According to Insider Monkey’s database, 13 hedge funds were long Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) at the end of March 2022, with collective stakes worth $100.50 million. Jim Simons’ Renaissance Technologies is the leading stakeholder of the company, with 620,308 shares worth $36.6 million.
Here is what Carillon Eagle Small Cap Growth Fund has to say about Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) in their Q1 2021 investor letter:
“Ritchie Bros. Auctioneers had an impressive 2020 and experienced significant market share gains after successfully shifting to an omni-channel strategy centered around online auctions. However, the firm saw shares suffer a bit in the recent quarter. This is primarily a result of slightly depressed auction volumes caused by the wait-and-see approach many customers have adopted as they hold on to equipment in the current rising price environment. Despite this, management remains focused on innovating and leveraging technology to drive long-term value, and we believe the company remains a compelling secular growth story.”
7. Restaurant Brands International Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 23
Restaurant Brands International Inc. (NYSE:QSR) is headquartered in Toronto, Canada, operating as a quick service restaurant company that runs through four segments – Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. Fast food business remains bustling despite economic pressures, making Restaurant Brands International Inc. (NYSE:QSR) a notable stock to buy amid rate hikes.
On May 3, Restaurant Brands International Inc. (NYSE:QSR) announced its first quarter results. The company posted earnings per share of $0.64, beating market consensus estimates by $0.02. The revenue of $1.45 billion also outperformed Street forecasts by $40.55 million. The revenue climbed 15.16% year-over-year in the first quarter of 2022.
Barclays analyst Jeffrey Bernstein on June 9 maintained an Overweight rating on Restaurant Brands International Inc. (NYSE:QSR) but lowered the price target on the shares to $61 from $68. As per the analyst, restaurants are considered to be part of the consumer discretionary sector and with recession fears increasing, some investors will deem restaurants as “uninvestable”. While he understands the concerns, the analyst believes “restaurants are on the extreme staple-end of consumer discretionary”.
According to Insider Monkey’s data, Restaurant Brands International Inc. (NYSE:QSR) was found in 23 public hedge fund portfolios at the end of Q1 2022, compared to 24 in the earlier quarter. Bill Ackman’s Pershing Square is the biggest position holder in the company, with 23.8 million shares worth about $1.4 billion.
Here is what Pershing Square Capital Management has to say about Restaurant Brands International Inc. (NYSE:QSR) in its Q4 2021 investor letter:
“QSR is a high-quality business with significant long-term growth potential trading at a highly discounted valuation.
Comparable sales have recovered or are well on their way to recovery.
Tim Hortons Canada improved to a mid-single-digit decline during Q3 relative to 2019.
Burger King U.S. under new leadership and poised to make a recovery.
Burger King International and the Popeyes brand continue to grow well with strong same-store sales growth relative to 2019 levels. As underlying sales trends recover, QSR’s share price should more accurately reflect our view of its business fundamentals.
Management continues to make investments for future growth.
Digital: G&A investment to modernize digital platforms and loyalty programs.
New Units: Return to historical mid-single-digit unit growth in 2021 and beyond.
Brand Acquisitions: Purchased Firehouse Subs for $1bn in December.
Remains cheap relative to intrinsic value and peers.
Trades at less than 18x our estimate of 2022 free cash flow per share.
The company began repurchasing shares in August.
As underlying sales trends recover, QSR’s share price should more accurately reflect our view of its business fundamentals. QSR’s share price increased 3% in 2021 and has decreased 7% year-to-date in 2022.”
6. Bank of Montreal (NYSE:BMO)
Number of Hedge Fund Holders: 15
Bank of Montreal (NYSE:BMO) is based in Montreal, Canada, offering diversified financial solutions such as personal and commercial banking products and services primarily in North America. Bank of Montreal (NYSE:BMO)’s Q1 GAAP EPS of $5.56 and revenue of $7.27 billion surpassed market estimates by $3.09 and $2.06 billion, respectively. The Q1 revenue grew 45.71% compared to the same quarter in the prior year.
On May 26, Canaccord analyst Scott Chan raised the price target on Bank of Montreal (NYSE:BMO) to C$157 from C$155 and reaffirmed a Buy rating on the shares.
Bank of Montreal (NYSE:BMO) declared on May 25 a C$1.39 per share quarterly dividend, a 4.5% increase from its prior dividend of C$1.33. The dividend is distributable on August 26, to shareholders of record on August 2. The stock delivers a dividend yield of 4.23% as of June 10.
Among the hedge funds tracked by Insider Monkey, 15 funds reported owning stakes in Bank of Montreal (NYSE:BMO) at the conclusion of Q1 2022, collectively valued at $241.4 million. Paul Marshall and Ian Wace’s Marshall Wace LLP is the biggest shareholder of the company, with 948,121 shares worth $111.6 million.
In addition to Suncor Energy Inc. (NYSE:SU), Enbridge Inc. (NYSE:ENB), and B2Gold Corp. (NYSE:BTG), Bank of Montreal (NYSE:BMO) is on the radar of elite investors.
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Disclosure: None. 10 Canadian Stocks to Buy Amid Rate Hikes is originally published on Insider Monkey.
