If you are looking for TSX stocks that offer handsome growth prospects for the long term, this post is for you. I will also talk about one name that seems an appealing bet but could be a trap.
Canada Goose (TSX:GOOS) has successfully pivoted its business to online in the last few years. This has notably improved its revenue growth and margins. While the luxury apparel maker has underperformed recently, losing 25% since last year, it could soon change course.
Canada Goose is a $2.6 billion vertically integrated consumer company made famous by its extreme weather outerwear. It derives almost 50% of its revenues from North America, and China is its key growth market.
Almost two-thirds of its revenues come from the online channel, which was much lower when it started it in 2016. The management has recently given upbeat guidance through 2028.
It sees revenue growth of 28% while operating profits should grow 38%, compounded annually for the next five years. This growth will mainly come from an increased focus on online sales and expansion in the womenswear segment. Though the stock has underperformed in the last few years, it could create decent value from here for long-term investors.
While oil-weighted energy stocks trended higher this week, gas-producing companies held back. So, this could be another opportunity for investors to grab natural gas-weighted names like Tourmaline Oil (TSX:TOU).
TOU stock has lost 35% of its market value since December 2022. That was quite expected, given a steep fall in gas prices. However, gas prices could bounce back later this year, given higher demand in Europe amid colder weather this winter.
Fundamentally, Tourmaline Oil is a great company with a solid asset base and sound financials. It has shown immense capital discipline since the pandemic, which has brought down a significant amount of debt. To be precise, its leverage ratio improved to 0.1x in Q4 2022 from 1.5x in 2020.
Solid free cash flow growth could fuel more special dividends this year as well. It is trading five times its earnings and looks discounted. In my view, TOU stock has hit bottom and could turn higher soon.
Here’s one TSX stock I’m cautious about.
Algonquin Power (TSX:AQN) stock seems to have priced in all the plights since November 2022. It currently trades at a handsome 5%, higher than the industry average. However, it still is a risky bet in the rising rate environment. If the rate hike cycle extends longer than expected, its debt servicing costs could increase, further denting its profitability. And when you are seeking stability, these are some of the risks that should be avoided.
Algonquin saw a terrible drawdown last year, a very rare among utilities. AQN’s upcoming quarterly earnings will decide how well it is placed and how investors’ returns will be shaped. Many peer TSX utility names offer similar growth prospects and a decent yield.