Some say stocks’ performance in January reflects an index’s performance for the rest of the year. Thus far, the TSX is down 0.25% year to date. Nevertheless, market analysts are optimistic that the start of interest rate cuts anytime this year could trigger a bull run.
But even without the rate cuts, Badger Infrastructure Solutions (TSX: BDGI) and ADF Group (TSX: DRX) have stormed out of the gate. Both stocks are ideal holdings in a Tax-Free Savings Account (TFSA) for their explosive potential.
Strong end-market demand growth
Badger delivered a market-beating return in 2023 at +56% versus the TSX’s +8.12%. As of this writing, the stock trades at $46.32 per share and is up 13.78% year to date. The 1.49% dividend is likewise safe, given the 42.18% payout ratio.
However, if you’re unfamiliar with the business, the $1.6 billion company provides non-destructive excavating and related services in North America. Badger’s diverse customer base covers the infrastructure industry, including construction, energy, industrial, telecommunications, and transportation.
Besides being the only vertically integrated, non-destructive excavation service provider, Badger boasts the largest hydrovac fleet in the region. Management expects the growing end-market demand to support sustainable revenue growth. The business thrives, as evidenced by the record revenue in the third quarter (Q3) of 2023.
In the three months ending September 30, 2023, total revenue rose 20% to US$195.55 million versus Q3 2022. Badger’s president and chief executive officer (CEO), Robert Blackadar, said the quarterly results indicate continued business growth through a busy construction season.
Notably, net earnings increased 60.4% year over year to US$23.28 million. On a year-to-date basis (first three quarters), the net earnings of US$37 million were 162.7% higher than a year ago.
Increasing revenues through its sales and national accounts commercial strategy is an ongoing concern. Badger can capture pricing opportunities and maximize asset utilization throughout its branch network in major urban centres with strong end-market demand growth.
Badger sees the need for near and long-term reinvestment in North America’s critical infrastructure. The company notes that new infrastructure to support sustainable energy technologies is a growing trend across its operating footprint.
Bright business outlook
ADF was a high-flyer last year and is likely to repeat in 2024. At $7.37 per share (pays 0.27% dividend), the year-to-date gain is 6.50%, while the trailing one-year price return is 235.75%. Had you invested $6,500 one year ago, your money would be worth $22,811.90 today.
The $240.55 million company operates in North America’s metal fabrication industry, handling highly technically complex mega projects. It specializes in assembling heavy steel built-ups and caters to the commercial, institutional, industrial and public sectors. ADF recently secured a combined new large-scale contract in Canada and the U.S. worth $234 million.
Given the impressive financial results in the first three quarters of 2023, ADF’s business outlook is brighter than bright. Total revenue and net income climbed 21.7% and 115.3% year over year to $242.6 million and $27.1 million. ADF’s board chairman and CEO, Jean Paschini, said the numerous projects under negotiations remain very active, ensuring continued growth of the order backlog.
Maximize tax-free money growth
Badger and ADF are profitable prospects for TFSA investors. Use your new contribution limit or available contribution room to maximize the tax-free money growth feature of the investment account.
