Turbocharge Your Portfolio for a Bull Market With 2 TSX Small Caps

Small-cap TSX stocks such as Well Health offer investors an opportunity to derive outsized gains in the upcoming decade.

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Investing in small-cap companies can help you outpace the broader markets by a wide margin if you can successfully identify winning bets. Typically, companies valued between the market caps of $300 million and $2 billion are classified as small-cap stocks.

Some of the best-performing companies in the last three decades started off as small caps. For instance, Amazon was valued at US$1 billion back in the early 2000s. While not every small-cap investment will be successful, this strategy offers an enticing risk/reward profile due to the potential to derive multi-fold returns in a bull market.

So, let’s see which two TSX small-cap stocks you should buy in March 2023.

Neighbourly Pharmacy stock

Among Canada’s largest and fastest-growing network of community pharmacies, Neighbourly Pharmacy (TSX:NBLY) is valued at a market cap of $1 billion. As a majority of these pharmacies are located in underserved markets, the company benefits from lower competition while generating a bulk of its revenue from prescription sales.

Neighbourly Pharmacy owns more than 6,500 outlets in Canada and is well poised to further gain traction on the back of its acquisition-based business model. In the last two fiscal years, it acquired 70 pharmacies, allowing the company to increase sales from $150 million in fiscal 2019 (ended in March) to $671 million in the last 12 months.

Inorganic growth continues to drive sales for Neighbourly Pharmacy, as its top line surged by 90.6% year over year to $265 million in the fiscal third quarter (Q3) of 2023. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) almost doubled year over year to $28.5 million in Q3, indicating a margin of 10.8%.

The company is forecast to end fiscal 2024 with sales of $953.8 million and adjusted earnings of $0.76 per share. So, NBLY stock is priced at one times forward sales and 30 times forward earnings, which is very reasonable.

Bay Street analysts remain bullish on this small-cap TSX stock and expect shares of the company to surge by 30% in the next 12 months.

Well Health stock

Another TSX stock part of the healthcare space is Well Health (TSX:WELL), a company valued at a market cap of $1 billion. One of the fastest-growing companies in Canada, Well Health has built its business by focusing on highly accretive acquisitions.

Well Health has increased revenue from $32.8 million in 2019 to $528 million in the last four quarters. Due to its exponential growth in sales, WELL stock has returned almost 4,000% to investors since its initial public offering in April 2016. Down 51% from all-time highs, WELL stock is trading at less than two times forward sales.

A practitioner-focused digital health company, Well aims to positively impact the outcomes of patients and empower healthcare practitioners by providing a robust portfolio of end-practice management tools and services, including electronic medical records, data protection, and revenue cycle management.

In Q4 of 2022, Well Health increased omni-channel patient visits by 42% year over year, while patient interactions stood at 4.9 million in 2022, up 86% year over year.

Due to its stellar growth metrics, Well Health stock is trading at a discount of 75% compared to Bay Street estimates.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool has a disclosure policy.

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