3 Canadian Small-Cap Stocks Packing Enormous Potential

Three Canadian small-cap stocks with market-beating returns in 2023 are exciting buys for their enormous growth potential.

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Some market analysts say investors are safer investing in large-cap stocks over small-cap stocks. For example, the Big Five banks are matured companies whose market cap sizes are more than $45 billion. They opine that companies with market capitalizations between $300 million and $2 billion are only for people with greater risk tolerance.

Unfortunately, the banking giants are underperforming year to date. Valeura Energy (TSX:VLE), Westshore Terminals Investment Corporation (TSX:WTE), and Dexterra Group (TSX:DXT) have done better amid a challenging operating environment. These small-cap stocks are exciting investment options now for their enormous potential.

High-growth stock

Valeura Energy’s runs since 2020 and in 2023 are mighty impressive. At only $3.90 per share, the overall return in three years and year to date is 851.2% and 86.6%, respectively. Who needs a dividend-paying energy stock if you can realize colossal capital gains? Had you invested $6,000 in November 2020, your money would be worth $57,073.17 today.

This $396.6 million upstream oil and gas company is based in Calgary but operates in the Gulf of Thailand and Thrace Basin of Turkey. Despite a higher net loss of US$6.8 million in Q3 2023 versus Q3 2022, Valeura’s cash-generative capacity remains strong. The adjusted cash flow from operations reached US$33.9 million, enabling the company to reduce debt by 60% to US$12.1 million during the quarter.

Its President and CEO, Sean Guest, said the long-term, resilient asset base assembled in Thailand produced another stable quarter of production operations. He adds that Valeura is now debt-free in Q4 2023 after fully liquidating its debt. The company will continue pursuing its growth-oriented strategy, including acquisition opportunities.

Enduring the headwinds

Westshore Terminals is unaffected by high inflation and rising interest rates, but operating costs, the volume of coal shipment per customer, and the contracted rate per ton are impacting financial results.

The $1.5 billion company operates a coal storage and unloading or loading terminal at Roberts Bank, British Columbia. Its coal terminal is the busiest globally, accommodating around 33 million tons annually. In the first half of 2023, revenue and profit increased 10% and 21% year-over-year to $188.6 million and $61 million, respectively.

At $24.01 per share, current investors enjoy an 11.21% year-to-date return on top of a hefty 6.1% dividend. This industrial stock has been paying quarterly dividends since June 2010. A $6,579.30 position (250 shares) will generate $100.33 in annual dividends or $25.08 every quarter in passive income.

Record results

The buy signal is up for Dexterra after management reported record results in Q3 2023. Through two operating segments, this $371.7 million company provides integrated facilities management services, workforce accommodation solutions, and other support services in the public and private sectors. 

In Q3 2023, consolidated revenue (Integrated Facilities Management and Modular Solutions) jumped 20% to a record $310.8 million versus Q3 2022. Notably, net earnings ballooned 168% year over year to $27 million.

Dexterra’s current competitive advantages are the ever-growing support services business, healthy sales pipeline, and building backlog. If you invest today ($5.75 per share), you can partake in the lucrative 6.09% dividend.

Established companies

Large-cap stocks are usually the core holdings in a portfolio. Some investors pass up on small-cap stocks, thinking they are startup companies. The corporate existence of Valeura Energy, Westshore Terminals, and Dexterra is between 23 and 53 years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Westshore Terminals Investment Corporation. The Motley Fool has a disclosure policy.

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