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The equity markets have been under pressure for the last few weeks amid higher treasury yields in the United States, with the 10-year benchmark note reaching a 16-year high recently. Investors are concerned that the Federal Reserve could keep interest rates higher for longer than expected as inflation remained elevated, thus driving yields higher and hurting the equity markets.
Given the volatile environment, investors should look to add quality stocks to their TFSA (Tax-Free Savings Account), as the decline in stock value could also lower their contribution room. Meanwhile, here are three quality TSX stocks you can add to your TFSA in this volatile environment.
Dollarama (TSX:DOL) is one of my top picks due to the defensive nature of its business. The discount retailer posted a solid second-quarter performance last month despite the inflationary environment. Its revenue grew 19.6% during the quarter amid same-store sales growth of 15.5% and the net addition of 81 new stores over the previous 12 months. Strong sales across its product categories drove the company’s same-store sales. The company’s ability to offer everyday products at affordable prices and consistent shopping experience drove its sales.
Meanwhile, the company’s management expects the uptrend in its sales to also continue in the second half. So, it has raised its fiscal 2024 same-store sales guidance from 5-6% to 10-11%. The company is also strengthening its direct sourcing capabilities to reduce intermediatory expenses and improve its bargaining power, thus allowing it to offer greater value to its customers. Its store expansion plans could continue to drive its sales in the upcoming years. So, given its solid underlying business and healthy growth prospects, I believe Dollarama would be an excellent addition to your TFSA.
Waste Connections (TSX:WCN) would be my second pick. Despite the weakness in the equity markets, the solid waste management company is trading 1.3% higher since the beginning of last month. The company posted an impressive second-quarter performance in August, with its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) growing by 11.3% and 11%, respectively. Price hikes, acquisitions, and strong execution drove its financials.
Meanwhile, the company is constructing two recycling facilities, which could become operational next year. It also has 12 renewable natural gas plants in the developmental stage. Along with these growth initiatives, its continued acquisitions and solid underlying businesses could boost its financials in the coming years. So, I am bullish on Waste Connections despite the uncertain environment.
Canadian Natural Resources
Amid supply concerns due to the continuation of voluntary supply cuts by Saudi Arabia and Russia, oil prices have increased over the last few months. Analysts are projecting oil prices to remain elevated in the near to medium term. Also, the escalation of the ongoing Israel and Palestine war could further boost oil prices. Given the favourable environment, I am picking Canadian Natural Resources (TSX:CNQ) as my final pick.
The company is boosting its production capacity through a capital investment of $5.4 billion this year. Amid these investments, the company has provided an optimistic 2023 production guidance, with the midpoint representing a 5.5% growth from the previous year. Also, the company has lowered its leverage and repurchased its shares over the last three years amid its strong cash flows. Considering all these factors, I believe the company is well positioned to deliver strong performances in the coming quarters, thus driving its stock price higher.