The COVID-19 market crash has not been as bad for some TSX stocks as it was on the broader markets. While some stocks are still trading 30%-40% lower, some have more than doubled so far this year.
Let’s take a look at two such TSX stocks that stood notably strong during the epic selloff in March. But will these two continue rallying? What should investors do?
Top TSX stocks: Kinaxis
Emerging tech company Kinaxis (TSX:KXS) is one of the top gainer TSX stocks this year. It has soared almost 80% so far in 2020.
Kinaxis offers cloud-based software subscription services to improve supply chain planning. RapidResponse—its product with supply chain analytical capabilities — helps manage interconnected, complex inventory management processes.
Kinaxis offers its customers two to five-year subscription models. The high retention rate of its customers enables recurring revenues and visibility. Notably, its average revenue growth came in at around 18% in the last five years. The stock surged by almost 500% in this period.
In the last few months, the global supply chain was badly hit amid the pandemic and lockdowns. However, as businesses restructure their supply chains and operations, Kinaxis will likely see increased demand.
The stock has soared this year mainly due to its above-average revenue growth and high margins. Kinaxis stock is currently trading close to its 52-week high and looks overvalued. Conservative investors could wait for a pullback to enter.
A $40 billion Franco-Nevada is a gold-focused royalty and a streaming company that differentiates itself from the traditional mining companies. Unlike its peers, however, it does not operate but owns working interests in mines, thus saving on capital expenditure significantly and helping realize higher profit margins.
Franco-Nevada generates almost two-thirds of its business from gold. The yellow metal’s rally has notably uplifted its earnings in the last few quarters. In the recently reported quarter, its net income increased by 67% compared to the same quarter last year.
Many gold miners and streamers have reported superior earnings growth in the first quarter due to higher realized gold prices.
Broad market uncertainty might continue to push gold prices higher for the rest of 2020. Also, lower interest rates and more economies plunging into recession will likely bode well for the traditional safe haven. Thus, gold miners and streamers could continue to benefit from the broader trend, pushing these TSX stocks even higher.
However, investors should note that many such gold-related stocks are already trading at a significant premium. The stocks could march higher, but their movement from here might not be as steep as it was this year.
Kinaxis offers strong growth potential, while Franco-Nevada’s safe business model makes it stand out from traditional miners.
Notably, both these TSX stocks seem overvalued at the moment and pose a high risk-high reward scenario for investors.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool recommends KINAXIS INC.