These Six Canadian Stocks Prove the TSX Isn’t Just Energy and Financials

By Will Ashworth

Funny story to start things off. 

I became a pescatarian (vegetarian who eats seafood) nearly a decade ago to support my wife’s move to eliminate meat from her diet. For the most part, I haven’t looked back. However, there is one thing I still crave every time I pass them in the grocery store  — Freybe pepperoni sticks.

Freybe is one of the many food manufacturers owned by Vancouver-based Premium Brands Holdings (PBH), a serial acquirer whose stock has had better days. 

In today’s commentary, I’ll highlight what I like and dislike about Premium Brands, three other Consumer Defensive stocks, and two Healthcare names. 

However, make no mistake about it. Premium Brands is on my Canadian SMID-Cap 30 list because it’s worth owning for the long haul… just for the pepperoni sticks. Someday, I see it trading near its all-time high set in 2021.

Happy Investing.

Empire Co. (EMP.A) - Consumer Defensive

Empire Co. (EMP.A) is the holding company that owns Sobeys, one of Canada’s largest grocery store chains with more than 1,600 stores operating in 10 Canadian provinces, generating more than $30 billion in annual revenue. 

Its grocery store banners include Sobeys, Safeway, Foodland, FreshCo, Farm Boy and Longos. It also owns Lawton's drug stores and Needs convenience stores. The head office is in Stellarton, Nova Scotia, about a 90-minute drive from where I live in Halifax. 

Sobeys’ history began in 1907 when J.W. Sobey moved to Stellarton and opened a meat delivery business. In 1924, his son Frank H. Sobey convinced him to add a full line of groceries. By 1939, it had six stores open in the surrounding area. In 1963, Sobeys had grown to the point where its investments were significant enough that the family created the holding company.

Empire has two reportable segments: Food Retailing, through its 100% stake in Sobeys, and Investments and Other Operations through its 100% stake in ECL Properties Limited, which in turn holds a 41.5% stake in Crombie REIT (CROMF) and minority equity investments in several Genstar Development subsidiaries. 

One of the things I like about Empire is the control position of the Sobey family, who own 94.5% of the Class B stock, the only class of shareholders able to vote. Including Class A shares, the family owns nearly 40% of Empire’s equity. The Sobey family is firmly in the driver’s seat and will continue to do what’s best to maintain a prominent position in Canadian grocery retail. 

Another thing to like is the work it’s doing to renovate its stores. Over three years between fiscal 2024 (May year-end) and 2026, it plans to renovate up to 25% of its store footprint. In fiscal 2025, it will spend approximately $350 million on renovations and new store expansion. 

CEO Michael Medline said in its Q2 2025 conference call that it expects to see new store openings accelerate in 2026 with Farm Boy and Longo’s leading the way in Ontario as well as Sobeys in Quebec. 

Lastly, Empire returns significant capital to shareholders through dividends and share repurchases. In fiscal 2020, it was $230 million; it expects to return $590 million in fiscal 2025, with share repurchases accounting for 68%, up from 43% five years ago. 

The biggest downside: It has snail-like growth on the top and bottom lines. Over the past three fiscal years, revenues have grown 1.9% ... in total, not annually, while adjusted EBITDA has moved sideways. 

Like the sector description, Empire Co. is most definitely a consumer defensive stock. And that’s a good thing.  

Premium Brands Holdings (PBH) - Consumer Defensive

Premium Brands Holdings is a Vancouver-based food conglomerate that produces and distributes deli meats, seafood, and other protein-focused foods across North America. 

Historically, it has been a growth company. As the company’s September 2024 presentation points out, its compound annual growth rate (CAGR) for revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) over the past 19 years are 19.9% and 21.4%, respectively.

You don’t see too many mid-cap Canadian companies delivering that kind of consistent growth. It’s impressive, for sure. 

Premium Brands is a serial acquirer, where it generates a big chunk of the growth. It acquires, integrates, and grows businesses. Repeat. Repeat. Repeat. It has invested more than $3 billion in over 80 acquisitions since 2005. It is currently either in the early stages of discussion or actively pursuing 27 businesses whose sales total $4 billion.  

It can continue acquiring businesses because it consistently adds to its free cash flow. In 2004, it was $0.78 a share. In 2023, it was $5.70, a CAGR of 11.0%. 

Its most prominent acquisition to date is Clearwater Seafoods, the Nova Scotia seafood company it acquired for $1 billion (including debt) in 2021 in a 50/50 joint venture with a coalition of Mi'kmaq First Nations.

However, it uses some of the free cash flow to pay down debt. It also uses some of it to pay quarterly dividends. Since it started paying dividends in 2005, it’s paid out $1.06 billion to shareholders. In 2024, it will pay out $3.40 a share in dividends, a yield of 4.3%.

A recent Globe and Mail article about 25 undervalued TSX stocks included Premium Brands stock on its list. The software used for this article valued Premium Brands stock at $94.92, considerably more than the current share price. That’s the good news. 

The bad news is that, at least in the near term, analysts are concerned about the company’s organic growth initiatives failing to gain traction. Its Q3 2024 MD&A (Management’s Discussion & Analysis) mentions that the growth initiatives planned for 2024 will now take place in 2025. 

That delay is reflected in Premium Brands’ share price. 

With CEO George Paleologou in the top job since 2008 and CFO Will Kalutycz since 2000, its management team has delivered for shareholders during their tenure. I expect they will continue to do so. 

It’s the Canadian SMID-Cap 30’s best value play.

Jamieson Wellness (JWEL) - Consumer Defensive

Jamieson Wellness (JWEL) is Canada’s vitamin and supplements leader. Its brands include Jamieson, Youtheory, Progressive, Iron Vegan, Smart Solutions, and Precision. Its history dates back to 1922. 

The company went public in July 2017, selling 19.05 million at $15.75 a share. In 7.5 years as a public company, its shares have appreciated by 104%, a CAGR (compound annual growth rate) of 11.4%. It’s never traded higher than $45, so the next leg up will be hard-fought unless it can continue its bottom and top-line growth.

Interestingly, its six-year CAGR for revenue and operating income were 14.5% and 15.1%, respectively, considerably higher than its share price appreciation. Based on the average of 14.8%, if its shares have been appreciated at that rate since its IPO, its share price would be around $44.25, 24% higher than its current price. 

A big part of the company’s growth is the result of its 2022 acquisition of Nutrawise Health & Beauty, the U.S.-based parent of its Youtheory brand, for $265 million. Its 2022 revenue was $157 million with $28.5 million adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). 

Youtheory’s 2023 revenue was $152.3 million, down slightly from its 2022 numbers. Through the nine months ended Sept. 30, 2024, revenues increased by 12.8%. If this growth is maintained through the end of 2024, the brand should generate sales of $172 million, about $20 million higher. At the same time, it does not grow tremendously; every little bit counts in scaling its worldwide business.

In Q3 2024, its revenue outside of Canada was $68 million, 38% of its total sales of $176.2 million in the quarter, up significantly from a year earlier. This geographic growth has helped with margins. In the third quarter, its gross margins were 38.4%, 460 basis points higher, while the operating margin improved by 100 basis points to 13.5%.  

The only negative that stands out about Jamieson is its Altman Z-Score of 2.33, according to S&P Global Capital Intelligence. The Altman Z-Score calculates the likelihood of a company entering bankruptcy proceedings in the next 24 months. 

At a Z-Score under 1.81, a company is at risk of doing so. Jamieson’s score was cut in half in 2022 because of the debt taken on to buy the Youtheory brand. It’s something to keep an eye on. 

Lassonde Industries (LAS.A) - Consumer Defensive

If you like apple juice, you’ll love Quebec juice maker Lassonde Industries (LAS.A), whose juice brands include Oasis, Rougemont, SunRype, Graves, Allens, Apple & Eve, and others.

However, it’s about more than juice. Its other brands include Antico (pasta sauces), Canton (broths), G Hughes Sugar Free (BBQ sauces), Gia Russa (pasta sauces and olive oils), the SunRype group of fruit snacks, and a variety of alcoholic wine and cider brands available in Quebec only.   

As a kid, I drank a lot of Graves apple juice. Not such much anymore, but I might have to switch to Oasis orange juice because Tropicana’s become undrinkable. But I digress. 

Founded by Aristide Lassonde in 1918 in Rougemont, Quebec. Lassonde started with a cannery selling canned tomatoes and beans to stores in Montreal. His son Willie took over the business in 1944, moving into apple juice in 1959. Many acquisitions and generations later, it went public in 1987. It remains a family-controlled business with Chairman Pierre-Paul Lassonde controlling 92.5% of the votes and 55.5% of the equity. 

I love family-controlled businesses. They look beyond the next quarter for growth. 

If you bought shares in Lassonde at some point in the past five years, your level of satisfaction depends on when you acquired them. If you purchased in April 2021 and still hold, you’ve lost money, but because of its healthy dividend, you’ve generated a positive annualized total return. However, if you bought below $100 in April 2023 at its five-year low, you’ve nearly doubled your money. 

Despite the threatened Trump tariffs, I like that the company generates 58% of its revenue in the U.S., an obviously-much bigger market than Canada. Management should look to other countries for additional revenue in the future. 

Its current strategy revolves around diversifying its revenue through continued investment in its specialty foods business to accelerate its growth, gain market share in Canada, and remain competitive in the ultra-competitive U.S. market. 

It’s also committed to boosting its margins. In Q3 2024, its gross margin was 26.9% on $668.3 million in revenue, up 180 basis points in Q3 2023, while its operating margin was 7.1%, 100 basis points higher.

The downside to its business is the debt it must take on to continue to grow--both in terms of capital expenditures and strategic acquisitions. Its total debt at the end of September, according to S&P Global Market Intelligence, was $468.3 million, more than double what it was at the end of 2023. It acquired U.S.-based premium sauce maker Summer Garden for $371.2 million, which included potential earnouts of $45.3 million. 

It’s an excellent defensive stock, in my opinion. 

Chartwell Retirement Residences (CSH.UN) - Healthcare

Chartwell Retirement Residences (CSH.UN) is one of the leading companies in the Canadian seniors housing market. It got its start as an open-ended real estate trust in 2003. 

As of Sept. 30, 2024, it had 112 residences that are 100% owned and 52 partially owned, located in Quebec (48%), Ontario (37%), B.C. (8%), and Alberta (7%). Altogether, Chartwell’s 164 residences have a total of 25,983 suites. It also manages seven other residences with 1,794 suites for 27,777 total.

I can say from experience — my mom spent the last 10 years of her life in a retirement home — that they aren’t cheap. However, to succeed in senior housing, you must be an exceptional operator. I believe that Chartwell is such a beast. 

Chartwell provides five levels of care: Independent Living residences (8% of suites), Independent Supportive Living apartments (37%), Independent Supportive Living suites (47%), Assisted Living Suites (7%), and Long Term Care or LTC (3%). 

In my limited experience with my mom, it was clear that LTC care is challenging to make money in because you’re dependent on provincial funding for part of your revenue. While there is plenty of debate about the value governments receive for the funds dished out to for-profit LTC facilities relative to not-for-profit and municipally-owned facilities, it’s the most challenging of the care levels for seniors housing.

That’s why it sold its Ontario LTC operations in September 2023 for $378.7 million, of which Chartwell received net proceeds of $148.9 million after debt and other closing costs. In 2022, before the sale of its Ontario operations, LTC accounted for 13% of Chartwell’s total suites footprint.               

The trust’s sale was part of a decision to move toward higher-margin, lower labour risk Independent Living and Independent Supportive Living properties. That transition will be reflected in its profitability in the years to come. 

In Q3 2024, its FFO (funds from operations) from its continuing operations was $55.9 million, 55% higher than in Q3 2024. That’s a function of higher occupancy rates combined with higher revenue per suite. 

With an aging population and low construction starts, the demand for new residences will only go in one direction--and Chartwell will benefit from this reality. 

The biggest downside to the business, and something to be very aware of, is the capital required to grow. It’s tremendous. Your balance sheet can get out of whack quickly in the wrong hands. 

That’s why I like Chartwell stock. It knows what it’s doing. 

Andlauer Healthcare Group (AND) - Healthcare

If it wasn't for the Ottawa Senators, I would have had no idea who Michael Andlauer was or the company he runs, Andlauer Healthcare (AND). While Andlauer is the majority owner of the NHL club, his day job as CEO and 67% owner of the healthcare transportation and logistics company gets most of the investors’ attention.

Since being spun off from Andlauer Management Group in December 2019, its shares have gained 210%, a compound annual growth rate (CAGR) of over 25%. That doesn’t include the returns from the small dividend launched in March 2020. Initially, the quarterly dividend was $0.05 a share. It is now double at $0.11, or $0.44 annually. 

The beauty of Andlauer’s business is that it’s taken a relatively mundane trucking business and made it vital by focusing on the critical needs of those in the healthcare industry.

Most importantly, the company ships drugs, therapies, and vaccines requiring cool-temperature storage. In 2021, Covid-19 vaccines accounted for 4% of its revenue, dropping to 3.0% in 2022 and less than 1% in 2023. 

It’s not the additional revenue the pandemic generated but the goodwill gained within the healthcare industry. It has a built-in moat that most other Canadian trucking and logistics businesses don’t have. That’s a significant competitive advantage. 

In 2023, its revenue and EBITDA took a step backward as it returned to a more normalized business without the Covid-19 bump. That’s going to happen in business. In the first nine months of 2024, revenue growth is returning, up 0.7%, to $482.2 million, while EBITDA rose by 1.7%, to $121.0 million, a 25.1% EBITDA margin, 20 basis points higher than a year ago. 

With a strong balance sheet--its net debt as of Sept. 30, 2024, was $123.0 million, or 0.74 times its EBITDA. It has plenty of financial liquidity to carry out a growth strategy that combines organic sales growth with strategic acquisitions to accelerate its expansion both geographically and into other growth verticals.

The biggest downside with Andlauer is that it’s not a bargain with an enterprise value (EV) of $1.93 billion, 13.6 times EBITDA, and an EV that’s 3.0 times revenue. Investors were willing to pay far more for AND in 2021. Those multiples should come back over the next two years as its top and bottom lines grow. 

It’s a dull stock in the best possible way.       

Until next time. 

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.

Will Ashworth is currently ranked 125 out of 30,588 financial bloggers analyzed by TipRanks, with a 18.6% return on his buy and sell ratings. He is one of the founding contributors to this newsletter.

Will has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.