If you define a bull market as a scenario where the index is 20% higher than its bottom, we’re not officially there yet. The S&P/TSX Composite Index hit a bottom in October 2022 at $18,326. It’s now trading just 11.4% higher than that.
Some tech and growth stocks have rebounded strongly since last winter. However, most of them are still trading significantly below their all-time high. Put simply, this market isn’t as frothy as it used to be. If you’re a patient and long-term investor, that’s a good thing! Here are the top two TSX small caps you can buy to prepare for the next bull market.
WELL Health Technologies
I’ve been writing about this stock for four years and have held it in my portfolio for over three years. Zero regrets! WELL Health Technologies (TSX:WELL) is a powerhouse with so much potential. It’s rapidly expanding its virtual clinics and healthcare data management software across the U.S. while adding new doctors and clinics in Canada.
Meanwhile, the team is backed by billionaire Li Ka Shing and is using some capital to buy back shares. That’s because the stock is arguably still undervalued.
The company expanded total revenue by 34% in its most recent quarter. WELL Health expects to deliver nearly $710 million in annual revenue in 2023. Meanwhile, the company’s market cap is just $1.2 billion. Effectively, the price-to-revenue ratio is 1.75 — egregiously low for a software company.
Recently, the team also announced its WELL AI Voice product, which is an automated note taking and transcription service for healthcare professionals. According to the team, this new AI-enabled bot could help doctors free up 30% of their time working with patients.
This gives the company exposure to the ongoing generative AI wave. Keep an eye on it.
Topicus
Topicus (TSXV:TOI) is another TSX small-cap stock that should be on your radar in 2023. The stock is trading 31% below its all-time high. However, the underlying business is stronger than ever.
In recent months, the team has doubled down on its growth-via-acquisitions strategy. Topicus is focused on niche, mission-critical software services in Europe, which are currently undervalued. Integrating these new acquisitions into the core business should help boost earnings and cash flows in the years ahead.
Right now, the stock is still cheap. It registered €494 million (CA$725 million) in consolidated revenue over the past year and is on track to expand that by double digits this year. Meanwhile, the company’s market value is just $7.77 billion — a price-to-earnings ratio of nearly 11. That’s fair value for a software conglomerate with high retention and attractive margins.
Keep an eye on this small-cap growth stock.
