4 Cheap Stocks to Beat the TSX

The TSX stocks have the potential to deliver stellar returns and diversify your portfolio, thus reducing risk.

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Tough year-over-year comparisons, fear of economic slowdown amid high inflation and interest rates, and geopolitical headwinds are why several TSX stocks are trading cheap. This correction in TSX stocks presents an opportunity for investors to buy high-quality stocks cheap and outperform the TSX in the long term. So, if you have some extra cash, consider buying these four stocks with the potential to deliver superior returns. 

Shopify  

Down more than 78% in one year, Shopify (TSX:SHOP)(NYSE:SHOP) is an attractive tech stock with the potential to deliver multi-fold returns as e-commerce growth reaccelerates. It’s worth mentioning that tough comparisons from the prior year and the overall slowdown in e-commerce due to the economic reopening weighed on Shopify’s growth (its revenue growth slowed from 41% in the fourth quarter [Q4] of 2021 to 22% in Q1 of 2022. Further, it decelerated to 16% in Q2 of the current year) and its stock price. 

Looking ahead, comparisons will ease in the second of 2022 for Shopify, implying its growth could reaccelerate. Moreover, benefits from its investments in e-commerce platform will further support its growth. Also, its focus on strengthening its fulfillment, the growing adoption of POS (point-of-sale) offerings, geographic expansion, and partnerships with top social media platforms augur well for growth. 

Docebo

Docebo (TSX:DCBO)(NASDAQ:DCBO) is another stock in the tech space that I find attractive at current levels. The reason is the continued momentum in its business and its lucrative share price that is well below the prior year (down over 63% in one year). Notably, Docebo’s annual recurring revenues (a key measure of future revenue growth) have grown at a CAGR (compound annual growth rate) of 66% since 2016. Moreover, its average contract value has grown over four times since then. 

Docebo is growing its customer base. Further, an increased number of customers are opting for multi-year contracts. Also, its retention rate remains high. Besides the strength in the base business, new product launches and accretive acquisitions position it well to deliver solid growth.  

Telus 

Investors willing to invest in stocks that benefit from the 5G revolution can opt for buying Telus (TSX:T)(NYSE:TU). Telus’s ability to consistently grow its customer base, lower blended churn rate of less than 1%, investments in network infrastructure, and expansion of its PureFibre offerings are why I am bullish about Telus stock. 

Further, investors will benefit from Telus’s dividend-growth program. It has consistently paid and increased its dividends for a very long time. Additionally, it enhanced shareholders’ value through share buybacks. Telus is confident of growing its dividend at a mid- to high single-digit rate in the coming years and is yielding about 4.7%.

Aritzia

Aritzia (TSX:ATZ) stock has delivered solid returns in the past three years (up over 163%). However, year to date, the stock has witnessed a pullback of 25% from its 52-week high, providing an excellent entry for long-term investors. 

Aritzia is growing its business well, with its sales increasing at a CAGR of 19% since FY18. Meanwhile, its net income had a CAGR of 29% during the same period. Strong demand, investments in innovation, geographic expansion, strengthening of the e-commerce platform, entry into new verticals, and profitable growth are why Aritzia stock could outperform the TSX. 

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends ARITZIA INC, Docebo Inc., and TELUS CORPORATION.

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