Equity markets have the potential to derive generational wealth even with a small sum of investment. You typically need to identify a portfolio of companies that can deliver outsized gains over the long term on the back of consistent revenue and earnings growth.
Additionally, if these investments are held in a TFSA (Tax-Free Savings Account), you will not have to pay a single penny in taxes on capital gains earned.
The TFSA contribution room in 2023 has increased to $6,500, up from $6,000 in 2022. So, investors should allocate a portion of the TFSA contribution room towards small-cap growth stocks and benefit from the power of compounding.
Investors can consider buying shares of companies part of the renewable energy sector, given the global shift towards clean energy solutions. One small-cap TSX stock with significant upside potential is Tidewater Renewables (TSX: LCFS). Let’s see why.
Is Tidewater Renewables stock a good buy right now?
Tidewater operates a renewables business that enjoys significant government support, strong economics on projects, and contracted cash flows. It is focused on the production of renewable diesel, hydrogen, and renewable natural gas, or RNG.
In addition to growing consumer demand, the expansion of increasing renewable fuel supply initiatives will be the key driver for the company’s earnings in the upcoming decade. Tidewater is positioned to benefit from an early mover advantage as it has built the first renewable diesel and hydrogen plant in Canada. This refinery is co-located at the Prince George Refinery, which reduced Tidewater’s upfront capital spending and operating costs significantly.
Here, Tidewater utilizes renewable feedstocks to produce renewable diesel. The project includes an over-built renewable hydrogen plant that produces 10 million cubic feet per day of hydrogen.
Tidewater also has several co-processing projects that utilize existing refinery process units to blend in biogenic feedstocks and produce renewable products.
What is the target price for Tidewater stock?
Tidewater is an energy transition company that is focused on the production of low-carbon intensity fuels. Its transition assets include hydrogen production, storage of renewable fuels, and logistics assets.
Its co-located refinery was partially financed by the provincial government in British Columbia, which allocated $350 million to the project. Tidewater also signed two offtake agreements with investment-grade counterparties in the U.S. and Canada for environmental credits, diversifying its revenue base and cash flow in the process.
LCFS stock is valued at a market cap of $290 million. In the second quarter (Q2) of 2023, it reported a net income of $2.7 million, compared to $4.4 million in the year-ago period. Analysts expect Tidewater to increase sales from $76 million in 2022 to $422 million in 2024. Comparatively, its adjusted earnings are forecast to improve from $0.74 per share to $2.05 per share in this period.
Priced at 0.6 times forward sales and 3.9 times forward earnings, LCFS stock is very cheap. If Tidewater is priced at 15 times forward earnings, which is still reasonable for a growth company, the stock should gain over 300% from current levels.
Analysts remain bullish on LCFS stock and expect shares to surge over 80% in the next 12 months.
