Top TSX Stocks

There are a few reasons for investors to consider Canadian stocks as part of their diversification strategy: 

A Large Natural Resources Sector – The sheer size of the country and its location lets investors know that it is an area rich in natural resources. This also means that the country has a source of current and future wealth. 

An Advanced Skills-Based Economy – In this regard, Canada is similar to other western nations. The difference is that it is not as common to find these skill-based professions in a country with so many natural resources. 

Stability – Canada is not exempt from any problems that impact the global economy. However, the country is known for stable financial and business policies that have kept the economy relatively stable. This Goldilocks economy has meant that many Canadian stocks haven’t enjoyed the outsized growth of some U.S. equities. However, it also comes with a bit of protection against downside risk. 

According to S&P Global Market Intelligence, there was a time when U.S. stocks and Canadian stocks performed nearly identically. Here’s a graph that shows the performance of the S&P 500 Index vs. the TSX Index 

Source: S&P Global Market Intelligence 

You can see that with a couple of exceptions, the two indexes performed remarkably similar. That all changed around 2012 and Canadian stocks became less attractive.  

Source: S&P Global Market Intelligence 

This disparity is widely due to one sector, technology. However, Canadian technology stocks have been on the rise. And in 2022, the country is benefiting from renewed interest in materials stocks as well as a spike in commodity prices.  

For different reasons finance, materials, and energy stocks are among the best performing stocks as of September 2022. Here’s a brief overview of each sector and some of the top names for investors to consider.  

Financial – Similar to the United States, Canada has a strong banking industry. Many Canadian banks have a track record of solid performance that can provide long-term value to a portfolio. And several of these stocks pay dividends with attractive yields for investors.  

This sector makes up the largest percentage of the TSX at roughly 30%. And the Royal Bank of Canada (NYSE:RY)is the top-weighted constituent in the TSX. Beyond the Royal Bank of Canada some of the other top-performing Canadian financial stocks include: 

• National Bank of Canada (OTCMKTS: NTIOF)
• Toronto-Dominion Bank (NYSE: TD)
• Bank of Nova Scotia (NYSE: BNS)
• Canadian Imperial Bank of Commerce (NYSE: CM)
• Bank of Montreal (NYSE: BMO)

Materials and Mining – Canadian stocks can be an ideal choice for investors looking to diversify into gold and precious metals without owning the physical metal. Canada has a large natural resources sector. So, it’s not surprising that there are a number of gold mining companies with Canadian origins. This sector also gives investors exposure to other components in the mining and agriculture sectors. This sector makes up approximately 11.5% of the TSX. Some of the top Canadian materials and mining stocks include: 

• B2Gold (NYSE: BTG)
• Nutrien (NYSE: NTR)

Energy – Canadian stocks offer both traditional fossil fuel-based energy stocks as well as some renewable energy stocks. This sector makes up approximately 18.5% of the TSX. Some of the top Canadian energy stocks include:  

• Suncor Energy (NYSE: SU)
• Enbridge (NYSE: ENB)
• Algonquin Power & Utilities (NYSE: AQN)

Technology – As mentioned earlier, technology stocks have largely been the domain of the United States. As evidence of this, information technology stocks make up only about 5.5% of the TSX. However, there are a few Canadian companies that have become stars in the new economy being created. Some of the more popular names include:   

• Shopify (NYSE: SHOP)
• Constellation Software (OTCMKTS: CNSWF)
• Lightspeed Commerce (NYSE: LSPD)
• Kinaxis (NYSE: KXS)
• Blackberry (NYSE: BB)

One concern about investing in Canadian stocks is that they can be heavily weighted towards cyclical industries. For example, as of February 2022 financials (33.5%), energy (14.8%) and industrials (11.7%) made up nearly 60% of the index. That may be too much for some investors particularly because those sectors all tend to correlate roughly the same way as the economic cycle. But as a long-term play, Canadian stocks are worth considering with a small part of your portfolio.