The TSX has been resilient for most of 2023 but cannot sustain a longer winning streak. This year, high inflation, rising interest rates, and potential recession are market disruptions. However, two small-cap stocks continue to advance, notwithstanding the strong headwinds.
CES Energy Solutions Corp (TSX: CEU) and Logistec Corporation (TSX: LGT.A) have sustained their gains from a year ago and have market-beating returns year to date. You’ll wish you bought them before they soar through the roof.
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Champion in the oilfields
CES Energy Solutions isn’t an oil producer but services the oil and natural gas industry. The $844.2 million company is the champion in the oil fields with its technically advanced consumable chemical solutions. It operates in the entire Western Canada Sedimentary Basin and 20 states in America.
Two business segments, Drilling Fluids and Production & Specialty Chemicals, are the primary revenue generators. The Clear Environmental Solutions division is a complementary and supporting business. It provides environmental and drilling fluids waste disposal services to active industry operators.
CES is vertically integrated and boasts an asset-light business model that generates significant cash flows through all points of an oilfield’s life cycle. The recurring and growing revenue streams from chemical production enhance the company’s financial profile.
In the first half of 2023, net income rose 120% year over year to $66.9 million. Free cash flow reached $120.8 million compared to $50.2 million a year ago. At $3.40 per share, the energy stock is up 25.4% year to date, yielding a decent 3.12%.
If you invest in CES Energy today, you can earn two ways, from price appreciation and dividends. Market analysts recommend a buy rating with a 12-month average price target of $4.41 (+29.7% upside).
Protector of environment and water resources
Logistec derives revenue from two business segments: Marine Services and Environmental Services. The $874.9 million company provides specialized services to the marine community, industrial companies, and municipal and other governmental customers.
The core business segments support sustainable supply chains and protect our environment and water resources. At $68.50 per share, the year-to-date gain and trailing one-year return are 66% and 70.1%, respectively. The stock also pays a 0.69% dividend.
Logistec has 90 terminals in 60 ports that provide value-added services such as bulk, break-bulk, and container cargo handling. Marine transportation and agency services are available in the Arctic coastal trade. Interestingly, the company has reported profits every year since 1992.
In Q2 2023 (three months that ended June 24, 2023), consolidated revenue increased 11.9% to $244.9 million versus Q2 2022, although profit dropped to $3.3 million from $13.2 million. Besides the record revenue, the adjusted EBITDA of $37.6 million during the quarter was a new record for Logistec.
Its CFO and Treasurer, Carl Delisle, said, “We have once again set a record for revenue, this time for the second quarter of the year. Unfortunately, our profitability was severely impacted by substantial costs associated with our projects and strategic review.”
Management expects marine services to deliver a positive second half of the year due to the solid demand in cargo handling activities. The remaining backlog should help the environmental segment finish the year strong.
Unstoppable momentum
The TSX might end 2023 in the red but likely not CES Energy Solutions and Logistec Corporation, given their unstoppable momentum.
