The Canadian equity markets have been rising since the beginning of November amid the expectations that there will be no further rate hikes as inflation shows signs of easing. The S&P/TSX Composite Index has risen over 8% since the beginning of November. Amid improving investors’ sentiments, here are three top Canadian stocks that have the potential to outperform the markets over the next three years.
Nuvei
Nuvei (TSX: NVEI) is a fintech company that allows its clients to utilize its modular, flexible, and scalable technology to accept next-gen payment methods. The growth in online shopping is making digital payments popular, thus expanding the addressable market for the company. Meanwhile, the company is enhancing its product offerings, strengthening its technological capabilities, venturing into new local markets, and expanding its alternative payment methods to increase its market share.
The payment-processing company also recently opened a new office in Shanghai, China to expand its presence across the Asia-Pacific region. Supported by its growth initiatives and expanding addressable market, the company’s management hopes to grow its revenue at an annualized rate of 15–20%. Further, the company expects to increase its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin to 50% in the long run.
Further, Nuvei strengthened its financial position by lowering its leverage ratio by 0.2 to 2.6, which is encouraging. Meanwhile, with its NTM (next 12 months) price-to-earnings at 11.1, I believe it offers an excellent buying opportunity for investors with a three-year investment horizon.
goeasy
Second on my list would be goeasy (TSX: GSY), which provides leasing and lending services to subprime customers. It has grown its revenue and diluted EPS (earnings per share) at an annualized rate of 19.6% and 31.9% for the last five years. Meanwhile, its loan portfolio had expanded to $3.4 billion by the end of the third quarter.
Further, the company is adjusting its credit thresholds, affordability calculations, and underwriting requirements across its product offerings to reduce risks. Besides, its growing loan originations amid a diversified product base, omnichannel offerings, and cross-selling opportunities could continue to expand its loan portfolio. Management expects its loan portfolio to reach $5.1 billion in 2025, representing a 48.7% increase from its current levels.
Besides, the subprime lender has raised its dividend by over 30% for the previous nine years while its forward yield is at 2.77%. Meanwhile, it trades 8.5 times the next four quarters’ earnings, which looks cheap considering its high-growth prospects.
Magna International
My final pick would be Magna International (TSX: MG). Since November, the automotive spare parts manufacturer’s stock price has increased by around 15% amid its solid third-quarter performance and raising of its 2023 guidance. During the quarter, the company’s revenue and adjusted EPS grew by 15% and 32.7%, respectively. Besides, management has raised its 2023 guidance after its solid third-quarter performance. The midpoint of its revenue guidance represents 12.7% growth from 2022, while its adjusted net income could increase by 33.3%. Its adjusted EBITDA margin could also expand from 4.5% to 5.1%–5.4%.
Meanwhile, the company focuses on deploying higher capital towards high-growth areas, such as powertrain electrification, battery enclosures, and active safety. Besides, it is also improving its operational efficiency to increase its margins. These initiatives could drive its financials in the coming quarters.
Meanwhile, the company trades at 0.4 times its projected sales for the next four quarters and offers a forward dividend yield of 3.35%. Considering all these factors, I believe Magna International would be an excellent buy.
