Three potential market beaters for 2023
Laser-focused on creating shareholder value
As things look right now, the year ahead does not look promising for investors. But here are three stocks that I think will beat the market in 2023.
Royal Bank of Canada
Royal Bank of Canada (TSX: RY). The financial sector is the largest component of the Toronto Stock Exchange and can usually be relied on for decent returns. Rising interest rates should have given a boost to banks and insurers last year, but it didn’t work out that way. Investors were spooked by the possibility of a recession, which could result in a higher percentage of loan defaults, a decline in new borrowing, and further slippage in initial public offerings and mergers-and-acquisitions activity. The S&P/TSX Capped Financials Index fell 12.68% in 2022. Over the past decade, only 2020 was worse.
Royal Bank was also down but only by 5.18%. It continues to be Canada’s largest and strongest bank, and that position will strengthen if its bid for HSBC Canada is approved. The bank reported net income of $15.8 billion ($11.06 per diluted share) for fiscal 2022. On Nov. 30, it announced a 3% increase in its quarterly dividend to $1.32 per share ($5.28 a year). It was the second increase in the past year and gives the stock a yield of 3.9%. The shares closed Feb. 2 at $136.39.
Fortis Inc. (TSX: FTS). Utilities stocks are notoriously interest rate sensitive, so it was no surprise that the sector fell 14% last year as the Bank of Canada piled increase upon increase in an effort to stem inflation. Fortis didn’t fare quite as badly, but the stock was down 11.2% on the year. The shares touched an all-time high of $65.26 in April, but it was downhill from there.
You’d think that the St. John’s, Newfoundland-based company was having a bad year. Quite the contrary. Third-quarter adjusted earnings were $341 million ($0.71 per share) compared with $300 million ($0.64 a share) in 2021. For the first nine months of the 2022 fiscal year, Fortis reported adjusted earnings of $982 million ($2.06 per share), up from $919 million ($1.96 a share) in the prior year. The company announced a 5.6% dividend hike in November, to $0.565 per quarter ($2.26 per year). At the current price, the stock yields 3.9%.
The shares will likely continue to be under pressure in the early part of the year, although the dividend should provide support. Look for a rally in the price when central banks signal an end to rate hikes. At the close on Feb. 2, Fortis was trading at $55.54.
Tourmaline Oil Corp. (TSX: TOU). The TSX fared better than any of the U.S. indexes in 2022, due primarily to the strength of the energy sector, more specifically fossil fuel companies. They may be headed for extinction at some point, but right now they’re doing just fine.
Calgary-based Tourmaline is a relatively new, well-managed business that emerged as the country’s top natural gas producer after Encana pulled up stakes and moved to the U.S., changing its name to Ovintiv in the process. Tourmaline maintains operations in three core areas in Western Canada: Alberta Deep Basin; Peace River area; and the Montney formation.
Third-quarter results were impressive. Revenue was up 44% year-over-year to $1.7 billion. Cash flow was ahead 38% to just over $1 billion. Net earnings shot up to over $2 billion ($6.11 per share) from $361 million ($1.10 a share) the year before. No wonder the directors were comfortable declaring a special quarterly dividend of $2.25 a share, paid in November. For the full year, shareholders received regular and special dividends totalling $7.90. The company believes in sharing the wealth.
Tourmaline’s stock gained 67.2% in 2022, not including dividends. Will that continue in 2023? An energy price forecast published by Deloitte on Jan. 9 suggests natural gas prices will average slightly lower than last year but remain high by historic standards. If that turns out to be correct, Tourmaline will continue to pay high special dividends and the stock could see some modest capital gains. Closing price on Feb. 2 was $59.72.
Although I expect these stocks to outperform this year, I also see all three as sound additions to any portfolio.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
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Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.