Growth stocks could make investors seriously rich. Some even turn out to be multi-baggers. Here are a couple of TSX stocks that could grow fast within the next three to five years and are worth further investigation.
Source: Getty Images
Spin Master
As a leading global children’s entertainment company, Spin Master (TSX: TOY) could do well going into the holiday season. It has a toys portfolio, which includes its new toy, Bitzee, a digital toy you can touch, which came out in June and could be popular for Christmas. Additionally, it’s launching two new animated TV series, Unicorn Academy and Vida the Vet, which can help drive earnings in peripheral products.
Spin Master’s earnings could be bumpy, though. Other than experiencing growth spurts from launches of new toys or content for entertainment or digital games (its other two segments), it is also an acquisitive company. Spin Master appears to have been smart about where it allocates capital. Its five-year return on invested capital is decent at about 15.5%.
The company is acquiring Melissa & Doug, a leading preschool brand of wooden and sustainable toys, for $950 million. It could pay up to another $150 million, subject to achieving certain financial targets after close. Management expects the acquisition to be immediately accretive to earnings per share after closing in 2024. Spin Master is planning to fund the acquisition with $450 million in cash and debt of $500 million.
The company will be reporting its third-quarter financial results on November 1. So, it might be smart for interested investors to take this time to research the company to see if it’s a good fit for their portfolio.
At $36.61 per share at writing, the 12-month analyst consensus price target represents a discount of about 30%, which suggests it’s an undervalued stock and has the potential for upside of roughly 44%. Because of its bumpy earnings, investors should employ an active investing strategy in the stock.
Brookfield
Like Spin Master, Brookfield Corporation (TSX: BN) stock is also subject to the ups and downs of the economic cycle. Unlike Spin Master, which is a consumer discretionary stock, Brookfield positions itself as a premier global wealth manager for institutions and individuals.
Brookfield has capital deployed across three businesses: asset management, insurance solutions, and operating businesses. Most of its business generates substantial and growing cash flows. And it targets long-term returns of north of 15% per year for its shareholders.
Higher interest rates mean a tightened capital market, which could benefit Brookfield, which has high levels of liquidity and reliable access to capital. In other words, it could go after growth opportunities that swing by companies with low liquidity and little access to capital.
Patient investors in Brookfield stock today could double their money over the next five years. At $43.92 per share at writing, analysts believe the stock is discounted by over 30%. Notably, Brookfield also pays a growing dividend. For your reference, its 10-year dividend-growth rate is 8.6%. Because its dividend yield is small at less than 0.9%, investors should focus on price appreciation and employ an active investing approach.
