Compared to high-multiple tech stocks that fell off a cliff in the tech stock crash, these TSX growth stocks are more reliable for price appreciation over the next five years.
A TSX tech stock with high growth
Converge Technology Solutions (TSX:CTS) stock was swept into the whirlpool of the tech stock market crash in late 2021, falling about a third from the peak of $12 per share to the trough of $8 per share. The growth stock is showing tremendous price-growth strength, as it quickly rebounded above its 50-day simple moving average in a matter of a few weeks.
In December 2021, Jennifer Radman commented:
“We own a lot of this. The services side of technology has done well. Digitization and cloud adoption fit well for their acquisition strategy and they just invested in Europe. A lot of opportunity going forward.”
Jennifer Radman, vice president and senior portfolio manager at Caldwell Investment Management
Converge’s M&A growth strategy has been driving revenue and adjusted EBITDA growth, which, in turn, has been propelling its stock price. As a smaller-cap stock that has been executing its growth strategy well, the growth stock has incredibly outperformed the market benchmark. Shown below are the results of an initial $10,000 investment three years ago in Converge stock and TSX:XIU, respectively.
CTS, XIU Total Return Level data by YCharts
Converge has been acquiring companies at low multiples versus its valuation. Through multiple ways of reducing costs when integrating the businesses and cross-selling its broad offerings, it’s able to create tremendous value for shareholders. There’s still room for the stock price to run. At writing at $10.68 per share, the consensus 12-month price target of $13.63 represents about 28% near-term upside potential in the growth stock. Continued execution should lead to increases in its stock price target over time.
A high-growth stock in the utilities sector
Utility stocks are sometimes viewed as slow-growth dividend stocks. Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is a relatively high-growth utility stock that investors may be interested in. It has a track record of raising dividends for 11 consecutive years. Its 10-year dividend-growth rate is 9.5%, which is above average.
The dividend stock has retreated to relatively attractive levels for dividend income and price appreciation. The consensus 12-month price target suggests near-term upside potential of about 21% in the growth stock, while it pays a yield of approximately 4.8%. Over the next few years, AQN stock can potentially increase its earnings by about 7-9% per year.
Here are a couple of analyst comments from last month:
“Rough year for all power producers, especially renewables. Actually performed okay in relation to peers. Utility assets are looking relatively attractive again. They might shine again in 2022-23, if you’re looking for defense and a potentially challenging year. If the market rips ahead, these will lag, but he likes the 5-ish% dividend. Long term for him.”
Ryan Bushell, president and portfolio manager, Newhaven Asset Management
“For a taxable account so you get the tax credit. It pays a nice, rising dividend, but shares have drifted lower in the past year, until it’s now attractive. AQN is among the best in renewable energy.”
David Baskin, president of Baskin Wealth Management
Notably, Algonquin’s regulated utilities and renewable power assets are primarily in the United States. So, the stock pays a U.S. dollar-denominated dividend that can result in some volatility in the effective yield in Canadian dollars for Canadian investors.
