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After a solid recovery in the fourth quarter, global equity markets have turned volatile this year, with the S&P/TSX Composite Index falling around 0.2%. The indication from the Federal Reserve that it won’t be in a hurry to cut interest rates with inflation remaining on the higher side has weighed on the investors’ sentiments. The Red Sea crisis and the expectation of a global economic slowdown amid the impact of rising interest rates have also weighed on the equity markets.
Given the volatile environment, investors should look to add defensive stocks to strengthen their portfolios. Here are my three top picks.
Waste Connections (TSX:WCN), which collects, transfers, and disposes of nonhazardous solid wastes, would be my first pick, given the essential nature of its businesses. It operates in exclusive and secondary markets. So, it faces less competition, thus allowing it to maintain its margins. Further, the company has expanded its presence across the United States and Canada through strategic acquisitions.
Since the beginning of 2011, the company has completed acquisitions worth $22 billion. Despite these acquisitions, it has maintained its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin above 30%, which is encouraging. Supported by these strong financials, the company has returned over 575% in the last 10 years at a CAGR (compound annual growth rate) of 21.1%.
Meanwhile, the company has continued with its acquisitions. Earlier this month, it acquired Secure Energy Services, which owns 30 energy waste treatment and disposal facilities, for $1.08 billion. It is constructing several renewable natural gas plants and recycling facilities, which could boost its financials in the coming quarters. Given its solid underlying business, impressive financials, and healthy growth prospects, Waste Connections would be an ideal buy in this uncertain environment.
Canadian Utilities (TSX:CU) is another stable stock that I am betting on, given its low-risk utility business. The company primarily involves the transmission and distribution of electricity and natural gas, thus generating stable and predictable financials irrespective of the economic activities. Supported by its stable financials, the Calgary-based energy company has increased its dividend for 52 consecutive years, with its forward yield currently at 6.06%.
Further, its continued investments in expanding its rate base and focus on improving its operational efficiency could drive its financials in the coming years. So, it is well-positioned to maintain its dividend growth. Meanwhile, the company trades at an NTM (next 12-month) price-to-earnings multiple of 13, making it an attractive buy.
My final pick is Dollarama (TSX:DOL), which offers various consumer products at attractive prices. The company has adopted the direct sourcing method, giving it superior bargaining power. Besides, its cost-effective growth-oriented business model, lean operations, and efficient logistics have allowed it to offer products at compelling value to its customers. So, the company continues to witness solid footfalls even during challenging macro environments.
Since 2011, the discount retailer has grown its revenue and earnings per share at a CAGR of 11.3% and 17.5%, respectively. It has expanded its EBITDA margin from 16.5% to 31%. Bolstered by its solid performances, the company has delivered over 650% returns over the last 10 years at a CAGR of 22.4%. The company continues to expand its footprint and expects to raise its store count to 2,000 by 2031, which could boost its financials in the coming quarters. Also, it has raised its dividend 12 times since 2011. So, I am bullish on Dollarama, despite the uncertain outlook.