Investing in the stock market is quite challenging, given the multiple headwinds impacting global businesses. But you need to look past the volatility and identify secular growth trends that should support a company’s earnings and revenue growth over time.
Two such megatrends include decarbonization and digitization, making companies such as Brookfield Renewable Partners (TSX:BEP.UN) and Softchoice (TSX:SFTC) top bets right now.
These megatrends are the best place to invest $5,000 right now. The two stocks are well poised to capitalize on these themes and help you derive outsized gains in 2023 and beyond. Let’s see why.
Brookfield Renewable Partners stock
One of the largest companies in the clean energy space, Brookfield Renewable Partners (TSX:BEP.UN) has returned 363% to shareholders in the last 10 years, after adjusting for dividends, easily outpacing the TSX index in this period.
In 2022, its funds from operations stood at US$1 billion, or US$1.56 per unit, an increase of 8% year over year. Cash flows gained pace due to higher power prices, as well as organic growth and accretive acquisitions.
Brookfield’s business is backed by regulated cash flows primarily from its hydro portfolio, which generated US$667 million in funds flow last year. Comparatively, FFO from its wind and solar segments stood at US$579 million.
The company’s diversified asset base is supported by inflation-linked power purchase agreements allowing Brookfield to easily tide over in an uncertain macro environment. BEP continues to expand its base of cash-generating assets. The green energy producer has almost doubled its development pipeline from 62,000 megawatts to 110,000 megawatts in the last 12 months.
Brookfield ended 2022 with US$3.7 billion in available liquidity. This cushion provides it with the required financial flexibility at a time when the cost of capital is rising. In 2022, it also secured US$10 billion of financing. Moreover, Brookfield Renewable continues to accelerate capital recycling activities, the proceeds of which are deployed in other high-growth verticals.
BEP stock currently offers investors a tasty dividend yield of 4.5%. The TSX stock is also trading at a discount of 14% to consensus price target estimates.
Softchoice stock
An enterprise-facing software solutions company, Softchoice has increased its sales from $1.4 billion in 2017 to $2.2 billion in 2022. Its adjusted free cash flow has risen from $34 million to $72 million in this period.
With a total addressable market of $300 billion, Softchoice has enough room to grow its top line at an aggressive pace. Moreover, unlike most high-growth tech stocks, Softchoice is priced at 15.4 times forward earnings, which is quite cheap. It also pays shareholders $0.44 per share in annual dividends, indicating a forward yield of 2.7%.
Softchoice ended 2022 with more than 4,700 customers. The top 10 customers account for just 12% of gross profits, indicating the company is well diversified.
In 2022, Softchoice increased adjusted free cash flow by 21% due to a rise in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), as well as stable maintenance capital expenditures and lease payments.
Supported by its capital-light business model, Softchoice should benefit from operating leverage and drive profit margins higher, which in turn could support dividend increases. SFTC stock is currently trading at a discount of 17% to consensus price target estimates.
