It hasn’t been a great year for the stock markets. Better than 2022, sure, but that’s not setting a very high bar.
As of the close last Friday, the TSX and the Dow were hovering around break-even for the year. The S&P 500 and Nasdaq were well into positive territory, but only because of their heightened exposure to the tech sector, which has been the major bright spot this year.
We’re going through a period where some segments of the market are in retreat, such as utilities and telecoms, while a few (notably tech and energy) are doing reasonably well. That doesn’t mean you won’t find profitable securities elsewhere. But they aren’t very plentiful and you or your adviser need to do some research.
Here are three non-tech stocks that have outperformed this year. All are recommendations of my Internet Wealth Builder newsletter.
Saskatoon-based Cameco (CCO-T) is one of the world’s largest uranium producers, with major mines in Saskatchewan and refineries in Ontario.
Uranium is a hot commodity again and there is growing concern that global output may be insufficient to meet demand, especially with the sanctions on Russia. The price of one pound of the mineral has jumped more than 60 per cent this year and uranium mining stocks have gone along for the ride. Cameco shares, which ended last year at $30.69, closed Friday at $53.89, for a year-to-date gain of 75 per cent.
Second-quarter results showed a decline in revenue and profit compared to last year, owing mainly to lower sales volumes. But the first six months of the fiscal year were very strong. Revenue was $1.2-billion, up 22 per cent from the first half of 2022. Adjusted net earnings were $112-million (26 cents a share) compared to $89-million (22 cents) last year.
“All over the world, government policies and corporate decisions are being followed up with proposals, commitments, and actions to support the nuclear fuel cycle and re-energize nuclear power as a fundamental source of clean, secure, and low-cost energy,” said Cameco chief executive officer Tim Gitzel. “We are seeing improving market fundamentals with prices for uranium rising.”
But while the fundamentals are improving, uranium extraction remains a tough business. That was brought home in early September when Cameco released an update projecting that this year’s production from its Cigar Lake mine and McArthur River/Key Lake operations will be down about 8 per cent from previous estimates. The company cited equipment problems and a shortage of trained personnel as among the reasons for the shortfall.
So, we have a situation where demand is on the rise, which means the price of uranium is likely to move higher. But production problems may limit Cameco’s ability to take full advantage of the situation. Investors should monitor the situation closely. The stock has a history of volatility.
EQB (EQB-T) provides mortgage lending services through its wholly owned subsidiary, Equitable Bank, to individuals and businesses in Canadian urban markets, with a focus on entrepreneurs and new Canadians.
Most bank stocks are in the red this year. EQB is a notable exception; the shares are up about 30 per cent so far in 2023. The stock hit an historic high of $84.79 in August. It’s pulled back a little since then but is still outperforming the financial sector by a wide margin this year.
EQB had record second-quarter and first-half results and raised its dividend for the seventh consecutive quarter. The stock pays 38 cents a share ($1.52 a year), to yield 2 per cent at the current price.
This company has done well for our readers since it was first recommended over a decade ago. But history tells us the share price is vulnerable if we have a recession, so some caution is in order.
Fairfax Financial Holdings Ltd.
Fairfax Financial (FFH-T) is one of the largest property-casualty insurers and reinsurers in North America. Its CEO, Prem Watsa, is often called the “Warren Buffett of Canada” because of his value-based investment approach. Apart from its insurance operations, Fairfax owns positions in a number of non-insurance businesses, such as Stelco Holdings Inc., BlackBerry Ltd., Resolute Forest Products, and Golf Town.
The stock has been rising steadily for the past year and is now well past the $1,000-a-share mark – a level few Canadian companies ever achieve.
The company’s second-quarter results contained a lot of good news for investors. Net earnings attributable to shareholders were US$734.4-million (US$31.10 a share). That was a huge improvement over the same quarter in 2022, when the company reported a loss of US$32-million (a loss of US$1.83).
Book value per basic share, which Mr. Watsa considers to be the key measure of a company’s financial performance, increased to US$834.28, up 10.8 per cent (adjusted for a $10-a-share dividend paid in the first quarter) from US$762.28 as of last Dec. 31.
These are just three examples of outperforming non-tech stocks in 2023. There are several in the energy sector, including such companies as ARC Resources Ltd. (ARX-T) and Canadian Natural Resources Ltd. (CNQ-T). We’ve also seen good results from transportation company TFI International Inc. (TFII-T), and engineering and design firm WSP Global Inc. (WSP-T). Investors should focus on sectors that are outperforming the broad market and then zero in on the leading performers in those areas.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.
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