On Friday, the U.S. Labor Department reported that nonfarm payrolls, including public and private, increased by 339,000 against analysts’ expectations of 190,000. Besides, the passage of the debt ceiling bill by the U.S. Senate improved investors’ sentiments, thus driving the global equity markets higher. The Canadian benchmark index, the S&P/TSX Composite Index, rose 1.4% on Friday.
Despite the improvement in investors’ sentiments, the concerns over a global slowdown amid prolonged high-interest rates and ongoing geopolitical tensions persist. Given the uncertain outlook, investors can go long on the following three TSX stocks, given their growth prospects and solid underlying businesses.
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WELL Health Technologies
WELL Health Technologies (TSX: WELL) is one of the top performers this year, with returns of around 80%. Its impressive quarterly performances and raising of 2023 guidance by management drove its stock price. Meanwhile, the company has continued its growth initiatives by investing in new innovative products and acquisitions.
In April, WELL Health launched an investment program focusing on developing artificial intelligence-based next-generation tools for healthcare providers. Besides, it acquired a 51% stake in Affiliated Tampa Anesthesia Associates and is working on acquiring five multi-disciplinary primary care clinics in Calgary, Alberta. Boosted by these growth initiatives, management expects to grow its 2023 revenue by over 21% while expanding its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 10%. So, the company’s growth prospects look healthy.
Meanwhile, despite the recent surge in its stock price, WELL Health trades at an attractive valuation, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings at 16.6 and 1.7, respectively. So, I expect the uptrend in WELL Health’s stock price to continue.
Dollarama
My second pick would be Dollarama (TSX: DOL), a defensive stock with tremendous growth potential. The company operates 1,486 retail stores across 10 provinces, with 80% of the population falling within a 10-kilometre radius of its stores. Supported by its direct sourcing and buying capabilities and efficient logistics, the company offers a wide range of products at attractive prices. So, despite the challenging macro environment, I expect Dollarama’s stores to witness stable footfalls.
Dollarama, which has been adding an average of 70 new stores per year over the last 10 years, expects to increase its store count to 2,000 by 2030. Despite its aggressive expansion, new stores will reach an annual sales of $2.6 million within two years, depicting its efficient capital utilization. Besides, the company hopes to add 410 new Dollarcity stores over the next seven years. Given its expansion plans and solid underlying business, I expect the uptrend in Dollarama’s financials to continue, thus delivering superior returns.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) would be one of the ideal stocks to have in your portfolio. The company operates a highly franchised business, collecting royalties from its franchisees based on their sales. So, rising prices and wage inflation do not impact its financials. Its same-store sales grew by 13.6% in the March-ending quarter. Strong value messaging, promotional activities, and the reopening of non-traditional restaurants drove its sales. Along with the topline growth, the company’s adjusted EPS (earnings per share) also grew by 16.2%.
Supported by its solid financials, Pizza Pizza Royalty’s board raised its monthly dividend by 3.6% to $0.0725/share, representing a forward yield of 5.95%. Meanwhile, it was the sixth dividend hike since April 2020. Also, the company is expanding its footprint and plans to grow its store count by 3-4% this year, which could drive its royalty pool. Besides, the company’s valuation looks cheaper, with its NTM price-to-sales at 0.8, making it an attractive buy.
