The outlook for Canada’s stock market in 2024 is positive, although the TSX has yet to gather momentum. However, some small-cap stocks already have market-beating gains after only 27 trading sessions for the year.
CES Energy Solutions (TSX: CEU), North American Construction Group (TSX: NOA), and Black Diamond Group Limited (TSX: BDI) stormed out of the gates early and could make investors significantly more prosperous in 2024. You can pick up the three stocks from where they left off in 2023. Their trailing one-year price returns are more than 50%.
High-demand equipment and services
CES Energy benefits from the recovering global energy demand, a balanced oil and natural gas market, and higher commodity prices. It provides technically advanced consumable chemical solutions throughout the lifecycle of the oilfield. The $972.6 million company’s specialty chemicals are used in the oil and natural gas production and industrial markets.
At $4.08 per share, current investors are up 18.3% year to date (+58.21% from a year ago) in addition to the 2.45% dividend. The strong results in the first three quarters of 2023 reflect in the energy stock’s outperformance.
In the nine months ending September 30, 2023, revenue and net income climbed 18% and 92% year over year respectively to $1.6 billion and $105.5 million. Notably, funds flow from operations increased 43% to 183.5% from a year ago. Management said CES’ capex-light and asset-light business model generates significant surplus free cash flow (FCF).
Rising free cash flow
North American Construction Group, or NACG, reported record results in Q3 2023. In the three months ending September 30, 2023, revenue increased 1.8% to $194.7 million versus Q3 2022, a new record. While net income decreased 43.7% year over year to $11.4 million, FCF soared 196.2% to $10 million from a year ago.
The $803.5 million company provides heavy civil construction and mining services to the mining, resource and infrastructure construction markets in Canada, the U.S., and Australia. NACG President and CEO Joseph Lambert projects FCF between $160 and $175 million in 2024 compared to $90 and $110 million in 2023.
The energy stock trades at $30.05 per share (+8.68% year to date) and pays a 1.33% dividend. The current share price is 54.7% higher than a year ago.
Growth opportunities
Black Diamond has risen from obscurity and is a potential multi-bagger in 2024 like last year. In 2023, the industrial stock rewarded investors with a 71.3% return. At $9.09 per share, the year-to-date gain is 11.26%. The 1.32% dividend is modest but safe (15.1% payout ratio).
The $546.4 million company operates in the Rental & Leasing Services industry, providing space rental and workforce accommodation solutions. Black Diamond’s business thrives, as evidenced by its strong financial and operating results after nine months in 2023. During the period, revenue and profit rose 23% and 32% year over year respectively to $290.1 million and $22.5 million.
Black Diamond’s competitive advantages are supportive macro tailwinds, strong contract coverage, and a healthy pipeline of growth opportunities in North America and Australia.
Hot buys
CES Energy Solutions, NACG, and Black Diamond are today’s top picks and hot buys on the TSX. All did well in 2023, notwithstanding massive headwinds. I wouldn’t be surprised if the three are big winners this 2024.
