With the United States posting better-than-expected third-quarter GDP (gross domestic product) numbers, investors are concerned that the Federal Reserve would continue its monetary tightening initiatives, which could hurt global growth and equity markets. Amid these concerns, the S&P/TSX Composite Index has fallen 7.4% in the last two months.
However, long-term investors can ignore these short-term fluctuations and utilize these pullbacks to accumulate quality stocks to earn superior returns. Meanwhile, here are three top TSX stocks with the potential to deliver higher returns over the next five years.
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Telus
Telecommunication services are becoming essential amid rising digitization and growth in online shopping, remote working, and learning. Besides, the high initial investment in the telecom sector has created a natural barrier for new entrants, allowing existing players to enjoy higher margins. Given the favourable environment, Telus (TSX:T) is expanding its 5G and broadband infrastructure to increase its reach and customer base. Its PureFibre network reached 3.1 million premises as of June 30, while its 5G network covered 84% of the Canadian population.
Supported by these investments, the telco added 293,000 customers during the June-ending quarter, while its ARPU (average revenue per user) grew by 1.8%. Its churn rate stood at 0.91%, which is encouraging. Amid these solid operating metrics, the company’s revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 13% and 5%, respectively. Its free cash flow increased by 36.1% to $279 million. However, the company’s net income fell 61% amid increased depreciation, amortization, interest, and restructuring expenses.
The decline in net income and rising interest rates have weighed on Telus, with the company losing 10.7% of its stock price this year. Amid the selloff, the company trades 1.6 times its projected sales for the next four quarters. The company also pays a quarterly dividend of $0.3636/share, with its forward yield at 6.5%. Given its healthy growth prospects, high dividend yield, and attractive valuation, I believe Telus would be an excellent long-term buy.
Fortis
Second on my list is Fortis (TSX:FTS), a utility company that serves the natural gas and electricity needs of 3.4 million customers in Canada, the United States, and the Caribbean countries. The company’s cash flows are stable due to its low-risk utility business. Around 99% of its assets are regulated, shielding its financials from economic fluctuations. Supported by its stable cash flows, the company has raised its dividends over the previous 50 years, with its forward yield currently at 4.25%.
Meanwhile, the utility company reported an impressive third-quarter performance last week, with its adjusted EPS (earnings per share) growing by 15.5% to $0.84. Higher pricing, rate base growth, favourable currency translation, and increased profits from its retail business in Arizona due to warmer weather conditions drove its earnings. The company is also expanding its rate base, with a capital investment of $25 billion from 2024 to 2028. These investments could grow its rate base at an annualized rate of 6.3% to $49.4 billion, thus driving its financials in the coming years. Amid these investments, the company’s management is optimistic about raising its dividends by 4-6% yearly through 2028, making it an attractive buy.
Docebo
With businesses adopting corporate e-learning solutions to improve productivity and employee retention, the addressable market for Docebo (TSX:DCBO) is growing. The company has integrated artificial intelligence into its products, allowing its clients to get data-driven insights and enhance learners’ experience. Meanwhile, analysts are projecting the global e-learning market to grow in double digits for the next 10 years, which is encouraging.
Further, Docebo is growing its customer base at a healthier rate, with its customers increasing from 900 in 2016 to 3,591 as of June 30. During the same period, the company’s average contract value has increased by around four times. The company earns around 94% of its revenue from subscriptions, thus providing stability to its financials. However, amid the broader equity market weakness, the company has lost about 10% of its stock value in the last two months. Given its healthy growth prospects and discounted stock price, long-term investors can go long on the stock to earn superior returns.
