Our Top Canadian Stocks

ByMathieu Litalien Published On:

This article is a transcript from our most recent video, highlighted above. If you want to watch the video on Youtube and more importantly subscribe to the channel, head here.

Hi everyone, welcome to a new video. My name is Mat, and today we’re going to be doing a quick recap of what happened on the TSX in April, and look forward to some top picks in the month of May.

If you’re looking for some stocks besides these 3, head to our list of the best Canadian stocks to buy, which contains over 31 amazing Canadian stocks.

First, lets start with April, and what a month it was. With gains of 14.79%, it was one of the best months for the TSX on record.

Not only that, but volatility is starting to somewhat return to normal.

Volatility in April on the TSX is something we’d never seen before

In March, we saw gains and losses in the TSX index swing more than 4% in either direction in 11 of 22 trading days. This type of volatility has not been witnessed in a long time, if ever.

In April, there was only one 4%+ swing all month.

However, we’re still seeing swings well above normal, with 2-3% daily fluctuations not out of the ordinary.

So where do the stock markets go from here?

That’s a great question, and as such we’re going to be looking at some of the top stocks on the TSX for the month of May.

Although April was a great month, it’s not time to get comfortable yet.

In fact, we might be starting to see a little bit of a downtrend. Last week, the TSX lost about 4% in the last couple days of trading.

The Index and positive sentiment is starting to weaken, and as quarterly results start to trickle in, the true economic impacts are starting to become known. However, it’s important to note that we won’t know for some time now how bad the full impact of COVID-19 will be.

Why?

Well, most companies reporting this quarter are not reporting a full quarter worth of earnings that include COVID-19. With earnings being from January to March, it’s going to take us another 3 months to know the true impacts, and this is slightly scary.

Companies are pulling their guidance, and reliable Canadian dividend stocks such as Canadian Dividend Aristocrats are either cutting or suspending their dividends.

Even those that are well positioned to raise dividends are choosing instead to keep the dividend steady. Why are they doing this?

Uncertainty reigns supreme.

And this is why investors should be taking a cautious approach. Next quarter isn’t going to be pretty, and until there is more clarity, expect volatility to continue.

This is why we looked for outperforming TSX listed stocks in May

It’s important you pick stocks that can survive economic conditions like we’re seeing now (think blue-chip stocks).

Lets start with the tech industry. A couple of weeks ago, I spoke in a video specifically (watch here) about how technology stocks are proving to be quite resilient.

In that video, the three stocks mentioned are continuing to perform quite well. Today however, I have a new tech company.

This company isn’t as well known as the others, but Enghouse Ltd (TSX:ENGH) is an underappreciated software company.

Why is it underappreciated? Because it is rarely mentioned with the big tech names on the TSX.

However, based on its performance it really does deserve to be in the same conversation.

I’m sure you’ve heard of the FAANG stocks. This is an acronym used to describe the top tech stocks south of the border.

  • Facebook
  • Apple
  • Amazon
  • Netflix
  • Google

In Canada, we have our own version. They’re called the DOCKS.

If you haven’t noticed, there is no E in that acronym. So, Enghouse has been excluded from these high flying tech stocks in Canada.

However, this just shouldn’t be the case

Enghouse has outperformed most of the DOCKS

The only DOCKS Enghouse hasn’t outperformed over the last decade are Shopify and Constellation Software.

It has gained over 1100% in the last decade, you can’t really ask for much more than that.

How has it performed in 2020?

Once again, it has outperformed several of the docks. It’s up 9% year to date, and has proven to be quite resilient.

Although its 1% yield is nothing to get excited about, it is one of the rare Canadian tech companies that has shown a commitment to the dividend. There are only 3 Canadian Dividend Aristocrats that are tech companies.

  • Enghouse – 13 years
  • Tecsys – 12 years
  • Opentext – 7 years

In fact, at 13 years it has the longest dividend growth streak among all Canadian listed tech companies.

What it lacks in yield, it more than makes up in dividend growth. It has averaged 15-20% dividend growth, which is one of the highest rates among all Dividend Aristocrats.

The best part about owning a stock like Enghouse is the fact it will protect your portfolio if the pandemic happens to persist and we see the market fall again.

Even if it doesn’t, Enghouse is also well positioned to outperform in a market recovery.

This leads us to our next stock, Alamos Gold.

We spoke on gold stocks last week

Dan took a deeper dive into several gold investment options last week (watch the video here), so take a look if you’re interested.

We are firm believers that gold can act as a hedge when times are tough. It has a history, and has proven to be such.

However, is it too late to invest now that gold has run up significantly? Not necessarily. In fact, we recently updated our list of top Canadian gold stocks.

The amount of money the FED is pumping into the economy will support the price of gold for some time.

Likewise, if you invest in gold stocks, which are growing production and reducing costs, they should do well even if the price of gold stalls.

This is why we like Alamos Gold (TSX:AGI).

Expected to grow production by approximately 25 next year%

As its Young-Davidson mine enters into operation later this year, although it’s been pushed back into July, this was simply a matter of reduced operations due to COVID-19.

This is only a one month delay, and still should lead to significant cash flow generation in the second half of 2020.

Next year, all in sustaining costs, which is a key measure of costs in the gold industry, is expected to drop from $1100 in 2020 to just over $800 an ounce in 2021.

This is a pretty steep drop, and is one that is going to lead the company into a new period of cash flow generation.

Cash flows which are expected to maintain and support a growing dividend. Alamos recently raised its dividend by 50%. Its first raise in several years.

Since the company is expected to generate significant cash, we expect dividend growth to continue.

Our final top TSX pick for May Jamieson Wellness

Jamieson Wellness (TSX:JWEL) is a leading provider of vitamins and mineral supplements.

In Canada, Jamieson is household name, and is poised for excellent growth. Why?

According to research, less than 30% of Canadian take a vitamin. And even more alarming, more than 60% of Canadians don’t get enough nutrients from food.

Not surprisingly, since COVID-19 pandemic, the demand for Jamieson’s products has been on an upswing.

Health has been at the top of everyone’s mind. COVID-19 pandemic has been life changing.

So, it’s likely that Canadians are going to continue focusing on their health and increasing their VMS intake.

Jamieson already pre-announced quarterly results in which it expects revenue to be $10 million higher than expected. This is great news for investors.

It’s not surprising the company has been hitting 52 week highs on a regular basis. It is now one of the best performing stocks on the TSX index this year, up 22% YTD.

It is now trading at 28x forward earnings. Now, this may not seem cheap. However, it’s important to note that Jamieson has several growth options.

In fact, analysts were expecting high single to low double digit earnings growth for the next couple years. This was before the COVID-19 pandemic kicked in.

They will most certainly increase their expectations once Jamieson reports later this month.

Jamieson is not only a good play over the short term, considering we are likely facing a new focus on health across the country, Jamieson’s products will likely be supported for the long term.

There you have it, our top TSX picks for May

Enghouse, Alamos and Jamieson Wellness.

Three stocks make excellent choices for investors in May.

They should protect your portfolio if the COVID-19 pandemic persists. And they should also do well if we truly are in a rebound situation.

We aren’t traders, we’re investors. We buy stocks for the long term. We believe all 3 make excellent investment choices. If you’re looking for more top picks from us via video, make sure to check out this article.

Please, drop a comment and let us know what stocks you’re looking at this month.

And as always, please like and subscribe to the Youtube channel for more great Canadian content!