Growth investing has risks but is potentially rewarding because it helps regular investors achieve enormous returns. It involves investing in companies, regardless of age, that are doing well and have room to grow.
Today’s strong buys are Athabasca Oil (TSX: ATH), Hammond Power Solutions (TSX: HPS.A), and Black Diamond Group (TSX: BDI). All three companies have high-growth potential, a competitive advantage, and are scalable.
Strong cash flow generation
Athabasca Oil has a significant presence in Alberta’s Western Canadian Sedimentary Basin. Its vast land base with extensive, high-quality resources is a strong foundation for future growth. The $2.4 billion Canadian energy company develops thermal and light oil assets.
At $4.19 per share, the energy stock is up 73.86% year to date. The price three years ago was only $0.12. People who invested in November 2020 would have realized a whopping 3,392% gain. As a low-leveraged company, Athabasca generates significant free cash flow (FCF) through its low-decline, long-life oil-weighted asset base.
In Q3 2023, Athabasca incurred a net loss of $79.2 million compared to $155 million in net income in Q3 2022. However, FCF ballooned 115% year over year to $107.9 million. Oil prices advanced during the quarter because of strong world oil demand.
Management maintains a constructive outlook on prices as it believes they are supported by years of industry underinvestment. Further, demand trends plus OPEC+ cuts and inventory drawdowns support the global supply picture.
High-flyer
Hammond is a high-flyer in 2023. At $72.53 per share, the year-to-date gain is 263.8%. Had you invested $7,000 at year-end 2022, your money would be worth $25,461.89 today. Moreover, the overall return in three years is 1,268.9%, representing a compound annual growth rate (CAGR) of 139%. The industrial stock also pays a modest 0.68% dividend.
This $870.8 million company designs, manufactures, and sells quality transformers globally. Its dry-type and oil-filled transformers are in high demand in the utility market. Hammond also builds custom transformers for alternative energy systems such as wind power and co-generation systems.
In Q3 2023, sales rose 21% year over year to a record $179.5 million, while net earnings increased 25% to $14.4 million versus Q3 2022. Its CEO, Adrian Thomas, credits the strong demand across Hammond’s portfolio of products and services for the quarterly record revenue.
Foundational strength
Black Diamond is slowly rising from obscurity. The $421.5 million company provides specialty rentals and industrial services in Canada, Australia, and the United States. Two operating business units, Modular Space Solutions (MSS) and Workforce Solutions (WFS), are its revenue generators and growth drivers.
The latest earnings release reflects a thriving business. In Q3 2023, total revenue, profit, and FCF climbed 23%, 51%, and 28% respectively to $117.5 million, $13.6 million, and $30.6 million versus Q3 2022. Management said the strong financial and operating results demonstrate the foundational strength and diversity of Black Diamond’s platform.
Other competitive advantages include strong contract coverage, supportive macro tailwinds, and a healthy pipeline of growth opportunities in North America and Australia. The share price is $7 (+46.3% year to date), and you can partake in the 1.7% dividend.
Ideal for growth investors
Athabasca Oil and Hammond Power Solutions have already shown their ability to deliver substantial returns, while Black Diamond Group is well-positioned to do the same. With their continued business success, all three could outperform and outlast established, large-cap companies.
