Despite the fear of an economic slowdown, stocks have rebounded strongly this year. Further, the moderation in inflation and an expected stabilization in the interest rate environment indicate that the equity market could sustain momentum in the coming years, and stocks could continue outperforming other asset classes.
So, if you are sitting on cash and don’t need it for emergency purposes, consider investing the same into top-quality Canadian stocks with solid growth prospects. Against this background, here are my three top picks.
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goeasy
Investors shouldn’t miss the opportunity of buying goeasy (TSX:GSY) stock near the current levels. The stock looks highly attractive on the valuation front, while the company offers solid growth and pays a dependable dividend.
goeasy is in the non-prime consumer lending business and has consistently delivered double-digit revenue and earnings growth for years. For instance, its revenue sports a CAGR (compound annual growth rate) of 19.4% in the last five years. During the same period, its EPS (earnings per share) grew at a CAGR of an impressive 32.9%.
goeasy stock has witnessed a pullback amid economic uncertainty and its impact on non-prime borrowers and its business. Given the decline in its price, goeasy stock is trading at NTM (next 12-month) price-to-earnings multiple of 8.4, reflecting a significant discount from its historical average. Despite macro concerns, goeasy continues to deliver double-digit revenue and earnings growth, making the stock undervalued on the valuation front.
Looking ahead, the higher loan originations, stable credit quality, and a large subprime lending market will likely support its top- and bottom-line growth and drive its stock price higher. Further, this Dividend Aristocrat will likely enhance its shareholders’ returns through higher payouts.
Aritzia
After outperforming the broader markets for the past several years, shares of Aritzia (TSX:ATZ) witnessed a decline due to the near-term margin headwinds and moderation in its top-line growth. While Aritzia’s margins could stay under pressure in the near term, the correction in its stock price presents an excellent opportunity to own the shares of this high-growth company at a discounted valuation.
Aritzia forecasts double-digit sales growth in the coming years, led by solid demand for its product and the opening of new boutiques. It is expanding its footprint in the high-growth U.S. market, which will drive its top line higher. Meanwhile, its focus on strengthening the e-commerce business bodes well for growth. While its top line is expected to grow at a mid-teens rate, management expects earnings growth to exceed sales.
Overall, Aritzia offers strong growth while its stock trades cheaply, making the company an attractive long-term investment.
Shopify
Shopify (TSX:SHOP) has rallied and delivered exceptional gains so far in 2023. Despite the recent recovery, shares of this e-commerce platform provider are trading at a significant discount from the highs, implying further upside potential in the coming years.
With its growing market share in the overall U.S. retail and innovative products, Shopify is well positioned to capitalize on the shift in selling models towards omnichannel commerce platforms. Further, its growing merchant base, the addition of new marketing and sales channels, and its focus on delivering sustainable earnings through an asset-light model bode well for future growth and will likely support its stock price.
