Investors were encouraged by predictions of some market analysts in December 2022 that the TSX will rebound or even enter a bull market in 2023. Brian Madden, First Avenue Investment Counsel’s chief investment officer, said the first half of 2023 is about playing defence and most market gains will come in the second half.
The Bank of Canada’s conditional pause on rate hikes early this year saw a bull run, particularly in the tech sector. However, because of an overheating economy and stubbornly high inflation, the policymakers raised the interest rate this month to 4.75%, the highest in 22 years.
A market-wide rally will have to wait, with more rate increases coming. Still, a bull market scenario is likely when the environment normalizes, including oil demand growth. Crew Energy (TSX:CR) and Flagship Communities (TSX:MHC.U) are buying opportunities before a bull market materializes. Both small-cap stocks can turbocharge your portfolio.
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High-growth stock
Crew Energy, a TSX30 winner in 2022 (ranked third), trades at a discount. At $4.86 per share, the year-to-date loss is 13.7%, but you’re buying on weakness. In the last three years, the total return is 1,320%, translating into a compound annual growth rate of 142%.
The $780.7 million growth-oriented natural gas producer can mount a comeback and deliver massive gains when oil prices stabilize. In Q1 2023, petroleum and natural gas sales declined 22.8% year over year to $100.6 million, while cash from operating activities rose nearly 21% to $66.6 million versus Q1 2022.
Notably, net income reached $41.4 million compared to the $1.4 million net loss from a year ago. Another highlight was the 16% higher condensate production, indicating Crew’s ability to rapidly optimize the production mix to maximize value.
According to management, a roadmap to growth is in place, and Crew Energy can increase production by 2026 to 60,000 barrels of oil equivalent per day (boe/d). The level in Q1 2023 was 32,963 boe/d. Moreover, the assets can potentially support a significantly larger production base for a lengthy period.
Market analysts’ bullish sentiment reflects in their price targets. Their 12-month high price target is $9, with a return potential of 81%.
Cost-effective home ownership option
Flagship Communities develops, operates, and manages income-producing residential manufactured housing communities (MHCs) in seven states across the border. The $644 million real estate investment trust (REIT) reported improved financial metrics in Q1 2023.
In the three months that ended March 31, 2023, rental revenue and net operating income (NOI) rose 22.4% and 20.1% to US$16.8 million and US$11.1 million versus Q1 2022, respectively. Flagship’s net income climbed 575% year over year to US$16.2 million.
Its President and CEO, Kurt Keeney, said, “Our strong operating and financial results speak to the strength of our organic portfolio and the Manufactured Housing Industry, which remains a desirable and cost-effective home ownership option for many Americans.”
The REIT’s positive momentum makes it a screaming buy for capital appreciation and passive income. At $16.41 per share (+1.05% year to date), the dividend yield is a decent 3.54%.
Market recovery
The central bank resumed its rate hike cycle in June 2023 to bring inflation down to 2% by year-end 2024 to tame Canada’s resilient economy. Meanwhile, a broad-based stock market recovery is possible if the rate falls to 3% this summer.
