Buy These 2 Growth Stocks on the Dip

Well Health Technologies is one of two growth stocks experiencing rapid growth. Be patient but think about buying on weakness.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published January 30, 2024 8:30 pm EST

Growth stocks have been solid performers for investors. While they can be volatile, they offer investors exposure to high growth and high rewards. In this article, I’d like to highlight two growth stocks that I think you should have on your watchlist so that you’re ready to buy them if and when they fall.

Growth stock #1: Hammond Power Solutions

Although not very well-known, Hammond Power Solutions (TSX: HPS.A) has delivered on growth in the last many years. In fact, in the five years ended 2022, Hammond Power reported a 78% increase in revenue for a compound annual growth rate of 12%. Also, the company went from losing money to a net income of $45 million in 2022.

But what does Hammond Power do, and why is it growing so nicely?

Hammond Power is one of the largest manufacturers of dry-type transformers in North America. It supplies industries such as oil and gas, mining, steel, waste and water treatment, as well as data centres and wind power.

Hammond Power stock currently trades at approximately $92. It’s increased 1,400% in the last five years as global demand for power transformers has surged. Accordingly, Hammond Power’s revenue has rapidly grown, as has its backlog, which is a sign of future strength. In the latest quarter, the third quarter (Q3) of 2023, backlog increased 40% versus the prior year and 11% sequentially.

Looking ahead, Hammond Power is expected to post a 29% increase in earnings per share this year and a 13% increase in 2024. Also, the company is extremely financially operationally sound, with minimal debt and a return on equity of more than 30%. The stock trades at 17 times 2024 expected earnings.

#2: Well Health Technologies

My second growth stock that I think investors should buy on a dip is Well Health Technologies (TSX: WELL). Well Health is an omni-channel digital health company. It offers digital healthcare solutions for medical clinics and health practitioners globally. It’s also Canada’s largest outpatient medical clinic owner/operator and leading telehealth service provider.

Well Health is another growth stock that has outperformed financially in the last five years. In fact, Well Health has been delivering record results for many quarters now. In its latest quarter, Q3 2023, the company reported a 40% increase in revenue to $204.5 million.

Its stock price performance, on the other hand, has been more volatile. While it’s up 657% from 2019 levels, it’s down big from 2021 highs. However, in my view, this is not unexpected. Well Health is trailblazing its way into the healthcare industry, bringing digital tools and solutions that are driving major improvements.

But this requires a big investment, which is what Well Health has been doing. It’s a big part of what’s driving growth, but it’s also the reason for the net losses that the company is posting. Healthcare systems are notoriously lacking in their use of technology. Well Health aims to change that and harness the power of digitization to improve efficiency and patient and doctor experiences. Ultimately, the goal is to also drive better patient outcomes through things like personalized care and enhanced early detection.