In this article, we will look at the 8 Best TSX Stocks To Invest In Now.
Canada’s Economy Shows Signs of Stabilization
According to Deloitte, the Canadian economy is showing signs of stabilisation after three years of turmoil, with inflation steadily declining since June 2022. Canada’s economy grew stronger in the first half of 2024 than previously forecast, but the pace of recovery is expected to be limited in the second half of the year due to slower household spending. The updated forecast projects real GDP growth of 1.2% for 2024, followed by 2.6% growth in 2025, with real GDP per person falling by 1.6% in 2024 before clawing back to gain 1.1% growth in 2025.
The Bank of Canada has begun to ease its monetary policy, paving the way for stronger economic growth. However, the pace of monetary easing is uncertain, and weak investment and productivity performance continue to pose a risk to Canada’s long-term economic outlook. The Bank of Canada is expected to cut interest rates at a gradual pace, with a rate cut in September followed by another in December and March. The overnight rate is expected to settle at a neutral level of 2.75% by the end of next year, assuming inflation continues to decrease and returns to the 2% target by the second quarter of next year.
Business sentiment in Canada is beginning to recover, with improved confidence across regions and sectors. However, business investment has been weak, directly impacting productivity and living standards. Since the 2014 commodity price crash, labour productivity in Canada has remained flat, while unit labour costs have increased by over 30%.
The economy’s current challenge is generating enough jobs to keep up with Canada’s rapidly growing population. Despite a strong pace of growth, employment has not kept up with population growth over the past 12 months, resulting in a rise in the unemployment rate. Wage growth slowed dramatically in the first quarter of 2024, and slower wage growth is expected to be the norm this year and next.
Canadian households are the most indebted in the G7, and the increases in interest rates since 2022 have hit their pocketbooks. Real consumer spending per person has fallen in five of the last six quarters, and the effect on home-building has been even more dramatic. However, consumer spending and residential investment are expected to increase as interest rate decreases work to restore demand.
Economist Predicts Stronger Economic Growth for Canada
James Orlando, a senior economist at TD Bank, is optimistic about Canada’s economic growth prospects, particularly in light of the recent interest rate cuts by the Bank of Canada. According to Orlando, Canada’s economic growth has consistently lagged behind the United States, but a change in interest rate policy could help close the gap. The Bank of Canada’s decision to cut interest rates is expected to lead to lower mortgage rates and increased consumer spending. This, in turn, could boost economic growth and help Canada catch up with the United States.
Orlando notes that the Canadian economy is highly sensitive to interest rates, particularly in the housing market. With high levels of debt and a reliance on variable-rate mortgages, Canadians are more likely to feel the pinch of higher interest rates. However, with the Bank of Canada’s rate cuts, Orlando expects to see increased investment in the housing market and potentially improved affordability. While affordability is still a concern, Orlando believes that the rate cuts will help to stimulate economic growth and create jobs.
Orlando also notes that the Canadian economy is expected to benefit from increased investment in areas such as the green transition and the production of electric vehicles. With a growing population and a need for more housing, Orlando expects to see increased investment in the housing market and other areas of the economy. While there are still challenges ahead, Orlando believes that the Bank of Canada’s rate cuts and the resulting economic stimulus will help to drive growth and create jobs in the Canadian economy.
While Canada’s economy is showing signs of stabilisation, the economy still faces significant challenges, including weak investment and productivity performance, a rapidly growing population, and high household debt levels. However, with the Bank of Canada easing its monetary policy and interest rates expected to decrease, consumer spending and residential investment are expected to increase, paving the way for stronger economic growth in the long term. With that in context, let’s take a look at the 8 best TSX stocks to invest in now.
Photo by Sandro Schuh on Unsplash
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in Canada by market cap. From that list, we narrowed our choice down to the 8 stocks that were the most widely held by hedge funds, as of Q2 of 2024. The list is sorted in ascending order of the number of hedge fund investors in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Best TSX Stocks To Invest In Now
8. Suncor Energy (NYSE:SU)
Number of Hedge Fund Investors: 44
Suncor Energy (NYSE:SU) is a leading Canadian integrated oil and gas company with a significant presence in the energy sector and is one of the largest integrated oil and gas companies in North America. Suncor Energy (NYSE:SU) is involved in the exploration, and production of crude oil and natural gas, along with refining and marketing of petroleum products.
Suncor Energy (NYSE:SU) has made significant progress in reducing its costs and improving its operational efficiency by implementing various initiatives, including advanced technologies and optimised production processes. These efforts have resulted in significant cost savings and improved profitability. The company’s diversified operations and integrated business model enable it to optimise operations and reduce costs, thus providing a strong competitive advantage.
With a large reserve base of over 7 billion barrels of oil, Suncor Energy (NYSE:SU) has a long-term source of production and revenue. In Q2, the company’s net debt decreased by $500 million, bringing it closer to its target of $8.0 billion.
With a strong track record of cost reduction and operational efficiency, Suncor Energy (NYSE:SU) presents a compelling investment opportunity. The company’s integrated business model, large reserve base, and low costs make it attractive to those looking for a stable and profitable energy company. In the second quarter, Suncor’s Energy (NYSE:SU) stock was held by 44 hedge funds with stakes worth $2.85 billion. Elliott Management is the largest shareholder in the company, with a stake worth $2 billion as of June 30.
7. Canadian Pacific Kansas City (NYSE:CP)
Number of Hedge Fund Investors: 44
Canadian Pacific Kansas City (NYSE:CP) is a leading North American railroad company, resulting from the merger of Canadian Pacific and Kansas City Southern in 2023. The company operates a unique rail network that connects Canada, the United States, and Mexico.
Canadian Pacific Kansas City (NYSE:CP) plays a critical role for transporting goods such as grain, oil, and intermodal containers across Canada, the United States, and Mexico. The company’s strategic position in the logistics chain, coupled with its efficient operations, allows it to capitalise on rising cross-border trade.
In Q2, Canadian Pacific Kansas City’s (NYSE:CP) revenue increased 13.5% year-over-year to $3.6 billion driven by a 6% volume increase and higher freight rates. The bulk business saw significant growth, with grain revenues increasing by 17% year-over-year and potash revenues up 24% year-over-year. The merchandise business also performed well, with Energy, Chemicals, and Plastics (ECP) revenues up 10% year-over-year. The company’s MMX 180/181 cross-border Mexico service saw a 50% volume increase since the end of 2023. The strong growth momentum in Q2 is expected to continue in Q3 due to a strong Canadian grain harvest.
Canadian Pacific Kansas City (NYSE:CP) is well-positioned for growth, driven by revenue synergies from the merger and a strong Canadian grain harvest. In the second quarter, the company’s stock was held by 44 hedge funds with stakes worth $7.71 billion. TCI Fund Management is the largest shareholder in the company with a stake worth $4.32 billion as of June 30.
6. Cenovus Energy (NYSE:CVE)
Number of Hedge Fund Investors: 46
Cenovus Energy (NYSE:CVE) is a leading Canadian oil and natural gas producer with a diverse asset base, including conventional oil and gas fields, oil sands operations, and a refining segment. The company’s refining segment includes two refineries in the United States, providing a stable source of cash flow.
In Q2, Cenovus Energy (NYSE:CVE) delivered a strong production beat, producing 800,800 barrels of oil equivalent per day, exceeding consensus expectations. The company also upgraded its guidance for downstream performance, setting the stage for a robust second half of the year. With a free cash flow yield significantly higher than its peers, Cenovus Energy (NYSE:CVE) is well-positioned to focus on liquid production and its refining segment, generating strong cash flows that will enable the company to return value to shareholders through share buybacks.
Having achieved its net debt target of $4.0 billion, Cenovus Energy (NYSE:CVE) is now focused on returning value to shareholders through share repurchases. The company has announced that it will allocate 100% of its excess free cash flow towards share buybacks, which will help to reduce its share count and increase its earnings per share.
This commitment to shareholder returns, combined with its strong growth prospects, makes Cenovus Energy (NYSE:CVE) an attractive investment opportunity for investors seeking a high-quality energy company with a strong growth profile. In the second quarter, Cenovus Energy’s (NYSE:CVE) stock was held by 46 hedge funds with stakes worth $1.21 billion.
5. Canadian Natural Resources (NYSE:CNQ)
Number of Hedge Fund Investors: 46
Canadian Natural Resources (NYSE:CNQ) is a leading independent oil and gas producer in Canada, with a diverse portfolio of assets in Western Canada, the United Kingdom, the North Sea, offshore Africa, and other international locations.
Despite steady production levels of around 1.3 million barrels per day over the past couple of years, the company is well-positioned to capitalise on improving market conditions, particularly in the natural gas sector. As natural gas prices continue to rise, Canadian Natural Resources (NYSE:CNQ) is expected to increase production, driving revenue and gross profit growth. The company’s unit economics, as measured by netback analysis, have already shown a significant improvement, increasing from $20.64/bbl to $28.68/bbl in Q2 compared to the same quarter in the previous year. This trend is expected to continue, with netbacks potentially reaching $30-35/bbl, driven by operational improvements and higher natural gas prices.
The US Energy Information Administration’s (EIA) short-term energy outlook forecast suggests that natural gas prices will increase over the next year, driven by increased liquefied natural gas (LNG) exports. Canadian Natural Resources (NYSE:CNQ) is well-positioned to benefit from this trend, having intentionally held back on natural gas production, with approximately 20% of its remaining 2024 planned natural gas wells drilled but production curtailed.
With a strong portfolio of assets and a proven track record of operational efficiency, Canadian Natural Resources (NYSE:CNQ) is poised to capitalise on the expected price increase and drive long-term growth and profitability.
In the second quarter, Canadian Natural Resources (NYSE:CNQ) stock was held by 46 hedge funds with stakes worth $3.77 billion. Fisher Asset Management is the largest shareholder in the company with a stake worth $1.49 billion as of June 30. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $11, which represents a 48% upside potential from its current level.
4. Agnico Eagle Mines (NYSE:AEM)
Number of Hedge Fund Investors: 50
Agnico Eagle Mines (NYSE:AEM) is the largest gold miner in Canada and the third-largest globally, with a portfolio of 11 mines spanning across Canada, Australia, Finland, and Mexico. Agnico Eagle Mines (NYSE:AEM) boasts a proven track record of expanding production and reserves, with a pipeline of near to mid-term opportunities to drive further growth.
In Q2 2024, Agnico Eagle Mines’ (NYSE:AEM) gold production reached 0.9 million ounces, bringing the total for the first half of 2024 to 1.77 million ounces. This puts the company on track to meet the upper end of its production guidance for the year. With strong production and rising gold prices, Agnico Eagle Mines (NYSE:AEM) revenue has increased by 20.9% year-over-year in Q2, and by 21% year-over-year for the first half of 2024.
The company’s margins have also remained strong, with an adjusted net margin of 23.4% in H1, up from 16.5% in 2023. These numbers have led to an upgrade in projections, with revenue expected to increase by 19.5% in 2024, and adjusted earnings per share (EPS) expected to reach $3.45, a 10% increase from previous forecasts. Alluvium Asset Management said the following regarding Agnico Eagle Mines (NYSE:AEM) in their second-quarter 2024 investor letter:
“Our gold miners had quite divergent performance, Agnico Eagle Mines Limited (NYSE:AEM) was up 11.4%, but Regis Resources was down 12.9%. They both provided quarterly updates. Regis reported business disruptions due to poor weather, but management maintained its output and cost guidance. It also announced the approval of two underground projects that will add around 25% to production levels from 2027, but they will cost circa AUD 150m. Agnico reported more positive results and reiterated guidance. We have revised our long-term gold price and exchange rate assumptions (which remain conservative). On our earnings based models we still view Regis as cheap and Agnico as expensive. But that ignores management, and, to a large extent, growth prospects. And when we consider those factors the equation looks decidedly more balanced. So despite Regis trading at an even larger discount to our valuation we have not bought more, and despite Agnico trading at an even larger premium to our valuation, we have not recently sold any. The Fund’s combined position in these gold miners is 6.6%.”
Gold prices reached an all-time high of $2,670 per ounce on September 25. According to J.P. Morgan Research, gold prices are expected to remain stable at $2,500 per ounce by the end of 2024 and rise to $2,600 per ounce in the first half of 2025. Agnico Eagle Mines (NYSE:AEM) is well-positioned to capitalise on this upward trend in gold prices. In the second quarter, Agnico Eagle Mines’ (NYSE:AEM) stock was held by 50 hedge funds with stakes worth $767.39 million
3. Waste Connections (NYSE:WCN)
Number of Hedge Fund Investors: 50
Waste Connections (NYSE:WCN) is a Canadian integrated waste services company that provides solid waste collection, transfer, disposal, and recycling services. Waste Connections (NYSE:WCN) operates across the U.S. and Canada and is known for its decentralized business model that focuses on local management and high margins. Waste Connections (NYSE:WCN) serves both residential and commercial customers and has long-term contracts and a steady demand for waste management.
In Q2, Waste Connections (NYSE:WCN) reported a 11.2% revenue growth and 16.4% increase in EBITDA. The company’s solid waste margin improved by 80-90bps, driven by the termination of unprofitable contracts, optimization of third-party cost structures, and easing cost inflation.
Waste Connections’ (NYSE:WCN) strong pricing realization and robust M&A pipeline are key drivers of its growth. The company has terminated low-margin contracts, resulting in a better margin profile and lower volume growth. Its M&A strategy, focused on small and tuck-in deals, has generated cost and revenue synergies, the company has spent $1.5 billion on acquisitions this year.
Despite these acquisitions, Waste Connections (NYSE:WCN) maintains a robust balance sheet, with debt leverage of 2.67x and sufficient capital for future acquisitions, share buybacks, and dividend payouts. The company’s disciplined pricing policy and focus on contract renewals and new contracts are expected to drive pricing growth, while volume growth is expected to revert to historical average levels.
Based on these factors, analysts expect that Waste Connections’ (NYSE:WCN) revenue will grow by 10.5% annually, with an operating margin of 22.8% by FY33. TimesSquare Capital stated the following regarding Waste Connections, Inc. (NYSE:WCN) in its first quarter 2024 investor letter:
“Many of our Industrials positions provide necessary business-to-business operational services, highly technical components, automation & efficiency improvements, or essential infrastructure services. Adding value to the strategy was Waste Connections, Inc. (NYSE:WCN), which collects, transfers, recycles, and disposes of waste for municipalities and businesses in the U.S. and Canada. Revenues and earnings topped expectations, as did management’s initial guidance for 2024. The company projects near-term growth in volumes and pricing, which recent acquisitions should make more than likely. As Waste Connection’s shares climbed 15%, we trimmed our holdings.”
The company’s strong growth prospects, combined with its robust balance sheet and disciplined pricing policy, make it a compelling investment opportunity. In the second quarter, Waste Connections’ (NYSE:WCN) stock was held by 50 hedge funds with stakes worth $1.52 billion.
2. Shopify (NYSE:SHOP)
Number of Hedge Fund Investors: 56
Shopify (NYSE:SHOP) is a leading global company that provides an e-commerce platform to enable businesses of all sizes to create online stores and manage their digital sales. Shopify’s (NYSE:SHOP) e-commerce platforms are known their speed, customization, reliability, security, and delivering a better shopping experience by using an ecosystem of applications and payment processing services. Shopify (NYSE:SHOP) powers millions of businesses in more than 175 countries and continues to expand its market share globally.
Shopify (NYSE:SHOP) is leveraging AI to enhance its offerings and provide a more personalized experience for customers and is enabling merchants to streamline their operations, improve customer engagement, and drive sales. Shopify’s (NYSE:SHOP) AI-powered tools can help merchants generate high-quality content, optimize product recommendations, and provide lightning-fast customer support. Additionally, the company’s AI-driven insights help merchants better understand their customer’s behaviour and preferences, allowing them to make data-driven decisions and stay ahead of the competition.
Shopify (NYSE:SHOP) has a robust monthly recurring revenue and subscription growth. Despite challenges posed by the current economic landscape, the company’s ability to adapt and innovate has allowed it to maintain its momentum, making it an attractive investment opportunity for those looking to capitalise on the growth of online retail. In the second quarter, Shopify’s (NYSE:SHOP) stock was held by 56 hedge funds with stakes worth $2.39 billion.
1. Teck Resources (NYSE:TECK)
Number of Hedge Fund Investors: 69
Teck Resources (NYSE:TECK) is one of Canada’s largest integrated natural resources groups. It produces copper from its four mines in Canada, Chile, and Peru. The company also produces zinc from its Alaska operating mine and coal from its mines in British Columbia.
Copper is an essential commodity in a wide range of innovations and technologies, including electric vehicles, solar panels, and wind turbines. According to McKinsey, the world’s increasing reliance on electrification is expected to drive up annual copper demand to 36.6 million tonnes by 2031, a significant increase from the current demand of around 25 million tonnes. However, copper supply will only reach 30.1 million tonnes, leaving a substantial gap of 6.5 million tonnes.
Furthermore, a “net-zero emissions” path would require an additional 54% of copper by 2030, highlighting the need for significant investment in copper production to meet the world’s growing demand.
Teck Resources’ (NYSE:TECK) Quebrada Blanca operations are stabilising, and production is ramping up steadily. This will drive up revenue and profitability for the company. Furthermore, the company’s commitment to return 30-100% of available cash flow to shareholders.
The world is facing a severe copper supply deficit, which is expected to persist beyond 2030. This will drive up copper prices and benefit Teck Resources (NYSE:TECK) due to its exposure to the rapidly growing demand for copper in the clean energy transition. In the second quarter, the company’s stock was held by 69 hedge funds with stakes worth $1.95 billion.
While we acknowledge the potential of Teck Resources (NYSE:TECK) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TECK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
