For investors with a limited amount of capital, lower-priced stocks seem like a good bet. However, you still need to identify quality companies that are trading at a discount and that are poised to deliver outsized returns over the long run.
We’ll look at three such Canadian stocks that are trading below $30 for TSX investors.
Algonquin Power & Utilities
The first stock on my list is Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN), a company that derives two-thirds of its EBITDA from regulated utilities and the rest from renewable energy. AQN stock is trading at a price of $19.46, indicating a forward yield of 4.4% given its dividend per share of $0.84. AQN has increased its dividend at an annual rate of 7% in the last five years, and the stock has returned 253% since June 2011.
In the first quarter of this year, the company reported revenue of $634.5 million, an increase of 36% year over year. Its adjusted EBITDA rose 17% to $283 million while adjusted earnings soared 21% to $124.5 million in this period.
Algonquin is well poised to increase its dividends going forward, as it aims to expand its base of cash-generating assets, driving earnings higher in the process.
Northwest Healthcare Properties REIT
Northwest Healthcare Properties (TSX:NWH.UN) is an open-ended real estate investment trust. It provides investors access to a portfolio of quality healthcare real estate infrastructure in Canada and other international markets such as Brazil, Europe, Australia, and New Zealand. The company has around 200 income-generating properties, and its portfolio of medical office buildings is characterized by long-term indexed leases and stable occupancies.
In Q1, Northwest Healthcare’s sales stood at $92.6 million and AFFO per unit rose by 0.5% to $0.21. The company attributed its AFFO rise to accretive acquisitions, increased management fees, and same-property operating income growth. Its total assets under management rose 16.2% year over year to $7.7 billion.
Northwest Healthcare stock is trading at $13 per share and provides a dividend yield of a tasty 6.1%.
HEXO
While the previous two stocks are solid companies that generate a stable stream of cash flows, allowing them to pay investors a dividend, HEXO (TSX:HEXO)(NYSE:HEXO) is a high-risk bet. HEXO stock is down 82% from record highs, making it the perfect contrarian bet. Valued at a market cap of $1.17 billion, investors have a 12-month average target price of $9.47 for HEXO stock, which is 18% above its current price. The stock has already gained 72% year to date.
HEXO has aggressively acquired companies this year, which should allow it to increase market share in Canada’s recreational marijuana industry. In May, it acquired Redecan for $925 million. Redecan is, in fact, Canada’s largest privately owned licensed marijuana producer. Earlier this year, HEXO also acquired Zenabis Global for $235 million. Zenabis has a strong presence in multiple European markets. HEXO also acquired 48thNorth Cannabis for $41 million in May 2021.
In the last 12 months, HEXO has reported sales of $111.6 million. After the above-mentioned acquisitions are closed, the company is on track to generate over $300 million in annual sales.
