The historic rate hike campaign of the Bank of Canada in 2022 to get inflation under control pushed the TSX into the red. Canada’s primary stock exchange posted a 2.2% gain in 2020 despite the global pandemic. However, it lost 8.7% last year from a 21.7% total return in 2021.
No primary sector escaped the rout, including the high-growth technology sector. Tech superstar Shopify (TSX:SHOP) was the biggest loser with its 73% negative return. WELL Health Technologies (TSX:WELL) in healthcare and utility stock Algonquin Power & Utilities (TSX:AQN) lost 42% and 45.8%, respectively.
Notwithstanding the continued rate hikes in 2023, these losing stocks staged a comeback, rose from the ashes, and have market-beating returns year to date. They could end up as the big winners this year.
Business momentum is back
At $84.90 per share, Shopify is up 80.6% year to date. Had you invested $9,402 (200 shares) at year-end 2022, your money would be worth $16,980 today. Also, its market cap has risen to $112.2 billion from $62.4 billion on December 31, 2022. The e-commerce platform has regained the trust and confidence of investors.
While the net loss in Q2 2023 reached US$1.3 billion, total revenue rose 31% to US$1.7 billion versus Q2 2022. Notably, Shopify posted positive cashflow for the third consecutive quarter. During the quarter, its free cash flow (FCF) reached US$97 million compared to a negative FCF of US$87 million from a year ago.
Shopify’s President, Harley Finkelstein, said, “Our business momentum has led to another quarter of strong financial results. We’re not just shipping products faster, but we are also expanding our global merchant base, all while improving our ability to generate greater free cash flow.” A landmark deal with Amazon.com is the new revenue growth driver.
Several growth catalysts
Many have given up on WELL Health Technologies, given that healthcare is a perennially weak sector. However, investors who did not sell the stock have a 51.1% year-to-date gain. Market analysts’ 12-month average price target is $8.21, a 91.3% increase from its current $4.29 share price.
The $1 billion digital healthcare company continues to impress investors. In Q2 2023, revenue increased 21.8% year over year to $170.9 million, a new high in quarterly revenue growth. Also, the net loss improved by 80% to $2 million versus Q1 2023. Management hopes to achieve significant growth in 2023 due to new growth catalysts.
WELL launched AI-related initiatives such as WELL AI Voice and the WELL AI investment program, including investments in AI-enabled disease detection capabilities.
Investors can earn two ways from Algonquin Power & Utilities: capital appreciation and dividends. At $9.65 per share (+12.4% year to date), the utility stock pays a juicy 6% dividend. The $6.7 billion company is taking a new direction to enhance shareholder value.
According to its interim CEO, Chris Huskilson, Algonquin will focus on its strong, low-volatility regulated utility business to realize the value of its assets. He said the best path forward is to pursue the sale of the renewables business.
Shopify and WELL Health are strong buys, notwithstanding further rate hikes by the central bank in 2023. Unfortunately, ESG investors might lose interest in Algonquin following its decision to drop the renewables energy business.