In this article, we will look at the 7 Most Profitable Canadian Stocks To Invest In.

Economy of Canada

According to a report by S&P Global, Canada’s economy is showing signs of recovery, with growth expected to pick up pace in the coming years. Although the forecasted GDP growth of 1.2% in 2024 and 2.0% in 2025 is still below the country’s potential growth rate of 1.8%, it’s a step in the right direction.

The labor market is experiencing a slowdown, with reduced hiring and rising unemployment. Whereas, wage growth is currently outpacing productivity growth, which is inconsistent with the 2% inflation target. The unemployment rate is expected to reach 7% by the end of 2024 before declining in 2025.

However, the Bank of Canada is turning its focus to potential risks to economic growth, despite the current slowdown. The BoC has already cut interest rates three times in a row and is expected to make further 25 basis point cuts in the fourth quarter and January.

The predicted recovery in 2025 is expected to be driven by investments, particularly in residential and non-residential sectors, rather than consumer spending. Consumer spending is likely to remain subdued due to the cumulative impact of higher interest rates. The effectiveness of changes to immigration policies is a key uncertainty in the forecast.

Canadian households, which hold the highest debt levels among G7 countries, have been severely impacted by interest rate increases since 2022. Real consumer spending per person has declined in five of the last six quarters, with an even more pronounced effect on home-building. However, consumer spending and residential investment are expected to increase as interest rate decreases help restore demand.

Warren Buffett on Investing in Canada

In Berkshire’s 2024 annual meeting, legendary value investor Warren Buffett expressed his confidence in investing in Canada, stating that his firm has a significant presence in the country with many operations and investments across various entities. He feels comfortable investing in Canada, just like in the US, because he understands the business environment and economy. Buffett noted that the Canadian economy moves closely with the US economy, and the results from his firm’s businesses with Canadian operations are consistent with those in the US.

Greg Abel, Vice Chairman of Berkshire, stated that the company has a significant presence in Canada across many of its operating entities. He noted that the company is always looking to make incremental investments in Canada because it’s an environment they’re comfortable with. Abel specifically mentioned that Berkshire has made substantial investments in Alberta, particularly in the energy sector, and that the Canadian economy is consistent with what Berkshire sees in the US.

Investing in Canada offers a unique opportunity to tap into the growing demand for green hydrogen and its various applications. The region’s abundant natural resources and innovative technologies make it an ideal location for the production of green hydrogen, which can be leveraged to create new industries such as ammonia and fertilizer production, as well as green steel. With that in context let’s take a look at the 7 most profitable Canadian stocks to invest in.

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 choices to 7 stocks with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.

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).

7 Most Profitable Canadian Stocks To Invest In

7. Canadian Pacific Kansas City (NYSE:CP)  

TTM Net Income: $2.57 Billion  

5-Year Net Income CAGR: 8.42%  

Number of Hedge Fund Holders: 44  

Canadian Pacific Kansas City (NYSE:CP) was formed in 2023 as the result of the merger between Canadian Pacific and Kansas City Southern. Canadian Pacific Kansas City (NYSE:CP) plays a vital role in the logistics by operating the rail network across Canada, the United States, and Mexico. The company provides a critical transportation link for the cross-border trade of goods such as grain, oil, and intermodal cargo for industries such as agriculture, energy, and manufacturing.

In the second quarter, Canadian Pacific Kansas City’s (NYSE:CP) revenue surged 13.5% year-over-year to $3.6 billion, driven by a 6% increase in volume and higher freight rates. The company’s bulk business saw significant growth, with grain revenues rising 17% year-over-year and potash revenues jumping 24% year-over-year. The merchandise business also performed well, with Energy, Chemicals, and Plastics (ECP) revenues increasing 10% year-over-year. Additionally, the company’s MMX 180/181 cross-border Mexico service saw a 50% volume increase since the end of 2023. This strong growth momentum is expected to continue into the third quarter, driven by a robust Canadian grain harvest.

Canadian Pacific Kansas City (NYSE:CP) is well-positioned for continued growth, driven by revenue synergies from the merger and a strong Canadian grain harvest. The company’s net income for the trailing twelve months (TTM) stands at $2.57 billion, with a 5-year compound annual growth rate (CAGR) of 8.42%. In the second quarter, 44 hedge funds held the company’s stock, with stakes worth $7.71 billion.

6. Suncor Energy (NYSE:SU)  

TTM Net Income: $5.57 Billion  

5-Year Net Income CAGR: 5.65%  

Number of Hedge Fund Holders: 44  

Suncor Energy (NYSE:SU) plays a significant role in the energy sector and is one of the largest integrated oil and gas companies in North America. The company’s diverse operations span the exploration and production of crude oil and natural gas, as well as the refining and marketing of petroleum products.

Suncor Energy (NYSE:SU) has recently reduced costs and enhanced operational efficiency through the implementation of various initiatives, including the adoption of advanced technologies and optimized production processes. These efforts have yielded substantial cost savings and improved profitability. The company’s diversified operations and integrated business model enable it to optimize its activities and reduce costs, which provides a strong competitive advantage in the market.

As of June 30, Suncor Energy (NYSE:SU) reported a TTM net income of $5.57 billion, a 25.48% increase year-over-year and a 5.65% increase over the last 5 years. The company made significant progress in reducing its net debt, which decreased by $500 million and brought it closer to its target of $8.0 billion. With a substantial reserve base of over 7 billion barrels of oil, Suncor Energy (NYSE:SU) is well-positioned for long-term production and revenue growth.

The company’s integrated business model, large reserve base, and low costs make it an attractive option for investors seeking a stable and profitable energy company.

5. Lululemon Athletica (NASDAQ:LULU)  

TTM Net Income: $1.63 Billion  

5-Year Net Income CAGR: 25.02%  

Number of Hedge Fund Holders: 45  

Lululemon Athletica (NASDAQ:LULU) is a Canadian company that sells athletic and casual apparel. The company also Lululemon also sells gloves, mittens, hats, shoes, bags, yoga mats, water bottles, and personal care products such as deodorant and dry shampoo. Lululemon Athletica (NASDAQ:LULU) also owns luxury streetwear brand called Lab and has expanded its product line by adding footwear.

Lululemon Athletica’s (NASDAQ:LULU) focus on innovative and high-quality materials, such as its proprietary Everlux fabric, has enabled it to maintain a premium pricing strategy, resulting in impressive gross margins of 55.5%. Additionally, the company’s community-based advertising approach, which partners with local athletes and influencers, has created a loyal customer base and fostered a strong brand identity. The company’s direct-to-consumer sales strategy, which includes over 700 owned stores and a strong e-commerce platform, allows for better margins and control over sales.

Lululemon’s (NASDAQ:LULU) growth opportunities in international markets, such as China, are significant. The company’s Chinese business grew 34% YoY in the last quarter, with same-store sales increasing 17%. The company plans to expand its store count in China to 260 by 2026,

Furthermore, the company’s men’s wear business, which grew 11% QoQ in the last quarter, provides another avenue for growth.

From a financial perspective, Lululemon Athletica (NASDAQ:LULU) has a strong cash position, with $1.6 billion in cash and no debt, which provides flexibility to invest in growth initiatives and return capital to shareholders through share buybacks. The company’s free cash flow has grown at a 34% CAGR over the past eight years.

Lululemon Athletica’s (NASDAQ:LULU) net income has increased by an impressive CAGR of 25.02% over the last 5 years. For the twelve months ending July 31, the company’s net income stood at $1.63 billion. Lululemon Athletica (NASDAQ:LULU) is well-positioned to continue to dominate the global athleisure market and deliver long-term value to shareholders. As of the second quarter, 45 hedge funds have invested $1.06 billion in the company.

4. Canadian Natural Resources (NYSE:CNQ)  

TTM Net Income: $5.66 Billion  

5-Year Net Income CAGR: 9.75%  

Number of Hedge Fund Holders: 46  

Canadian Natural Resources (NYSE:CNQ) is an independent oil and gas producer in Canada and operates a diverse portfolio of assets spanning Western Canada, the United Kingdom, the North Sea, offshore Africa, and some other international locations.

Canadian Natural Resources (NYSE:CNQ) is expected to increase its natural gas production as gas prices rise. Notably, the company’s unit economics have shown a significant improvement, with netbacks increasing from $20.64/bbl to $28.68/bbl in Q2 compared to the same quarter last year. This trend is expected to continue driven by operational improvements and higher natural gas prices with netbacks potentially reaching $30-35/bbl,.

The US Energy Information Administration’s (EIA) energy outlook forecast suggests that natural gas prices will increase next year, driven by increase in liquefied natural gas (LNG) exports. Canadian Natural Resources (NYSE:CNQ) has intentionally held back on natural gas production and is well-positioned to benefit from rising gas prices. Approximately 20% of its remaining 2024 planned natural gas wells have been drilled, but production has been curtailed.

Canadian Natural Resources (NYSE:CNQ) is well-positioned to capitalize on the expected price increase and drive long-term growth and profitability. The company’s net income has increased by a CAGR of 9.75% over the last 5 years. For the twelve months ending June 30, Canadian Natural Resources’ (NYSE:CNQ) net income stood at $5.66 billion.

3. Cenovus Energy (NYSE:CVE)  

TTM Net Income: $3.50 Billion  

5-Year Net Income CAGR: 74.34%  

Number of Hedge Fund Holders: 46  

Cenovus Energy (NYSE:CVE) is a prominent Canadian oil and gas producer with a diverse portfolio of assets, including conventional oil and gas fields, oil sands operations, and a refining segment. Cenovus Energy (NYSE:CVE) also operates two oil refineries in the United States.

In the second quarter, Cenovus Energy (NYSE:CVE) reported a strong production beat, exceeding consensus expectations with 800,800 barrels of oil equivalent per day. The company upgraded its downstream guidance.Cenovus Energy (NYSE:CVE) is well-positioned to focus on its liquid production and refining segment, generating substantial cash flows that will enable the company to return value to shareholders through share buybacks.

Cenovus Energy (NYSE:CVE) has achieved its net debt target of $4.0 billion and is now focusing on share repurchases. The company has committed to allocating 100% of its excess free cash flow towards share buybacks, which will help reduce its share count and increase earnings per share.

Cenovus Energy’s (NYSE:CVE) net income for the twelve months ending June 30 was $3.50 billion, a 22.51% increase year-over-year and an impressive 74.34% CAGR over the last 5-years. The company’s focus on returning value to shareholders and its robust growth prospects position it for long-term success. As of the second quarter, 46 hedge funds have invested in the company’s share, with stakes worth $1.21 billion.

2. Waste Connections (NYSE:WCN)  

TTM Net Income: $861 Million  

5-Year Net Income CAGR: 9.08%  

Number of Hedge Fund Holders: 50  

Waste Connections (NYSE:WCN) is a leading Canadian waste services company that offers a comprehensive range of solid waste collection, transfer, disposal, and recycling services across the United States and Canada. The company’s decentralized business model has high margins and has enabled the company to establish a strong presence in both residential and commercial markets.

In Q2, Waste Connections (NYSE:WCN) delivered impressive financial results, with revenue growth of 11% and a 16.4% increase in EBITDA. The company’s growth momentum is driven by its robust pricing power and a strong pipeline of merger and acquisition opportunities. Waste Connections (NYSE:WCN) has successfully exited low-margin contracts, which resulted in a more favorable margin profile and reduced volume growth. Waste Connections’ (NYSE:WCN) M&A strategy, focused on small tuck-in deals, has yielded significant cost and revenue synergies,

The company spent $1.5 billion on acquisitions this year, despite its active M&A program, Waste Connections (NYSE:WCN) maintains a solid balance sheet, with a manageable debt leverage ratio of 2.67x and ample capital for future acquisitions, share repurchases, and dividend payments. The company’s disciplined pricing approach and focus on contract renewals and new contracts are expected to drive pricing growth.

Waste Connections’ (NYSE:WCN) net income has grown at a CAGR of 9.08% over the past 5 years, reaching $861 million in TTM net income as of June 30. Analysts forecast that Waste Connections’ (NYSE:WCN) revenue will grow at a compound annual rate of 10.5%, with an operating margin of 22.8% by the fiscal year 2033, driven by the company’s strong fundamentals and growth drivers. 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.”

1. Cameco (NYSE:CCJ)  

TTM Net Income: $190 Million  

5-Year Net Income CAGR: 11.82%  

Number of Hedge Fund Holders: 60  

Cameco (NYSE:CCJ) is a leader in uranium production, with a significant presence in Canada’s Athabasca Basin through its Cigar Lake and McArthur River mines. The company’s integrated business model also encompasses uranium refining, conversion, and fuel manufacturing, making it a significant player in the nuclear fuel cycle. Cameco (NYSE:CCJ) is also a critical player in the development of small modular reactors (SMRs).

Cameco (NYSE:CCJ) has a 40% stake in the Inkai deposit in Kazakhstan, the world’s largest uranium deposit, which provides a substantial source of uranium production. The nuclear industry is driven by the increasing global demand for clean and reliable energy, and Cameco (NYSE:CCJ) is well-positioned to capitalize on this trend. The company’s diversified business, strategic partnerships, and expertise in the nuclear fuel cycle make it an attractive player in the market. Government policies to reduce carbon emissions and meet growing electricity needs are expected to drive up uranium prices, benefiting Cameco (NYSE:CCJ), given its significant uranium reserves and production capacity. Aristotle Capital Management stated the following regarding Cameco (NYSE:CCJ) in their Q2 investor letter:

“Cameco Corporation (NYSE:CCJ), one of the world’s largest publicly traded uranium producers, was the top contributor during the period. Support from governments and policymakers for nuclear energy has continued to increase in 2024 as countries realize it can play a crucial role in both promoting energy security and lowering dependence on fossil fuels to meet environmental goals. With higher demand for uranium across the world, Cameco’s production was up more than 25% year-over-year, and its long-term supply contracts have increased (annual commitments now standing at 28 million pounds per year through 2028). We view these fundamental improvements as further proof Cameco is making progress on our catalyst of increasing its uranium volume sold at higher prices, all while lowering production costs through scale and its access to some of the highest-grade ore on the planet. In addition, we believe the company’s continued integration of Westinghouse Electric Company’s market-leading downstream capabilities will allow it to offer a highly competitive nuclear fuel solution. In our opinion, this puts Cameco on track to enjoy higher levels of FREE cash flow and the ability to de-risk its balance sheet as it meets global energy needs.”

Cameco (NYSE:CCJ) expects to deliver 32-34 million pounds of uranium in 2024, representing a 1.5% increase from the previous year. The company’s expertise in uranium mining and conversion positions it well to capitalize on the growing demand for nuclear energy. As of June 30, Cameco’s (NYSE:CCJ) stock was held by 60 hedge funds with stakes worth $846.57 million.

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