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

Small-cap TSX stocks such as Lion Electric operate in the clean energy space and have the potential to deliver path breaking returns in the next decade.

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Bear markets can be brutal, as share prices of companies across most sectors experience a significant pullback. The selloff is often accelerated, as valuations fall off a cliff in the span of a few months. In fact, the average bear market lasts for fewer than 300 days but may seem like a lifetime.

However, a bear market provides you a chance to create generational wealth by purchasing quality stocks at a discount. These undervalued stocks typically gain momentum as investor sentiment improves, and a bear market is eventually replaced by a multi-year bull run.

Here are two such TSX small-cap stocks that can turbocharge your portfolio when a bull market returns.

The Lion Electric stock

A company that designs, manufactures, and distributes heavy-duty electric vehicles in North America, The Lion Electric (TSX: LEV) is valued at a market cap of $500 million. Its portfolio of products includes battery systems, truck cabins, and bus bodies, while Lion Electric also distributes truck and bus parts.

Lion Electric delivered 174 vehicles in the fourth quarter (Q4) of 2022 compared to 71 vehicles in the year-ago period. Its revenue more than doubled year over year to $46.8 million in this period. However, the company registered a gross loss of $4.8 million in Q4 compared to a gross profit of $2.2 million in the prior-year quarter.

A high pricing environment widened its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $13.9 million from $7.5 million in Q4 of 2021.

Lion Electric has delivered 950 vehicles to date and ended 2022 with a vehicle order book of 2,468 that includes 301 trucks and 2,167 buses, representing a combined order value of $575 million.

While still unprofitable, Lion Electric should improve the bottom line, as the company ramps up manufacturing capabilities and inflation cools down. Analysts expect its loss per share to narrow from $0.55 in 2023 to $0.27 in 2024.

Priced at 1.2 times forward sales, the TSX stock is trading at a discount of 143% to consensus price target estimates.

Tidewater Renewables stock

Another small-cap TSX stock with massive upside potential is Tidewater Renewables (TSX: LCFS). A company operating in the clean energy space, Tidewater Renewables aims to produce low-carbon fuels to meet the growing demand for renewable fuels in North America.

Valued at a market cap of $300 million, Tidewater Renewables completed its first full year of operations in 2022 and reported adjusted EBITDA of $62.4 million and distributable cash flow of $38.1 million.

A company that generates consistent profits, analysts expect Tidewater to improve adjusted earnings from $0.74 per share in 2022 to $2.22 per share in 2024. Currently priced at less than 10 times trailing cash flows, LCFS stock is extremely cheap.

Tidewater Renewables recently announced the unit commissioning of its Renewable Diesel Complex (HDRD) and a financing solution to support the completion of this facility. It has entered credit sales agreements to raise $43 million, which will be used to offset capital cost increases associated with the HDRD facility.

If HDRD operates at its design capacity, the facility should generate annualized EBITDA of between $90 million and $110 million. Due to its rapid expansion plans, analysts tracking the TSX stock expect shares to gain 100% in the next 12 months.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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