Are you looking for TSX stocks that have a chance of going parabolic?
If so, you might want to take a look at small-cap bank stocks. Yes, I’m serious: I said small-cap bank stocks. Such stocks have a real shot at delivering exponential returns in the year ahead. The reason is that there is such a cloud of fear hanging over their shares following the U.S. banking crisis that the probability of big moves on good news is very high.
This year, smaller Canadian banks have been rallying as their Big Six cousins stagnate. The reason for their stock price performance is their superior earnings performance. Many smaller Canadian financials are growing by high double digits. When you add to that the fact that most of them pay high dividends, the decision to invest seems like a no-brainer. Nevertheless, there are real risks with these stocks that you have to watch out for. In this article, I will explore two little-known TSX financials that have the potential to go parabolic in 2024.
EQB
EQB (TSX: EQB) is a Canadian online bank that offers very high-yield Guaranteed Investment Certificates (GICs). Unlike other banks, this company’s stock does not have a very high dividend yield (only 1.7%). But what it lacks in yield, it makes up for in growth. In its most recent quarter, EQB delivered the following:
- $395 million in revenue, up 80%
- $141 million in net income, up 208%
- $3.54 in diluted earnings per share (EPS), up 208%
- $70.33 in book value per share, up 12%
- 9% customer growth
- One-basis-point improvement in net interest margin
These were pretty incredible results. And the company expects them to continue! When it announced its fourth-quarter and full-year results, EQB also upped its guidance, saying that it expects another year of solid growth in 2024.
EQB’s long-term averages are just as good as its most recent quarterly results. Over the last five years, it has compounded at the following rates:
- Revenue: 22%
- Net interest income: 24%
- Net income: 18%
- Common equity: 17%
Those rates are just terrific. And the company thinks it can keep the good times rolling.
First National
First National Financial (TSX: FN) is another TSX lender that did a lot of growth in 2023 — and this one has a high (5.9%) dividend yield to boot.
First National isn’t a bank in that it doesn’t take deposits. It does, however, issue mortgages — and it’s collecting rising interest on them. In its most recent quarter, FN delivered the following:
- $226 million in revenue, up 26%
- $83.6 million in earnings, up 108%
- A 37% profit margin
- $114 million in operating income, up 108%
Those are all pretty strong results. And the conditions that made them possible look set to continue in 2024. Although interest rates are expected to come down somewhat this year, they will still be relatively high by the standards of the last 10 years. So, FN will have lots of opportunities to collect growing interest income.
Although First National’s long-term track record hasn’t been as good as EQB’s, it has done well more recently. And the macroeconomic picture should facilitate more good years to come.
