2024 is shaping up to be a “year of growth stocks.” With AI making waves and tech stocks riding high, investors remain hungry for growth. Even with interest rates at 5% and inflation rising, they can’t get enough! Some growth stocks are probably getting overvalued right now, yet others remain compelling. In this article, I will explore two growth stocks I’d buy and one I’d sell in 2024.
Buy: EQB Inc
EQB Inc (TSX:EQB) is a stock that offers both value and growth in one very compelling package. In its most recent quarter, it grew its revenue 27% and its earnings 12%. Despite this very rapid growth, the stock still only goes for 7.5 times earnings and 1.2 times book value!
Why is the stock so cheap? Well, it is a small bank stock, not a “systemically important bank” (SIB), and banks without the SIB distinction are disadvantaged in many ways. They’re generally thought of as less likely to get bailouts compared to their big bank cousins. Perhaps people are avoiding EQB out of fear that it will end up like the U.S. regionals that collapsed last year. EQB’s high liquidity coverage ratio argues that won’t happen, plus the company is earning high margins thanks to its innovative branch-less business model. I’d say a small position in this stock – perhaps 1% of one’s portfolio – would make sense for a lot of people.
Buy: Alimentation Couche-Tard
One stock that grew a lot in the last decade and looks like a buy today is Alimentation Couche-Tard (TSX:ATD). Some might quibble with my choice to call ATD a growth stock. The company’s revenue growth rate (-5.7%) in the last 12 months definitely isn’t a typical “growth stock” number, but the earnings growth in the same period was positive and high (24%), as was the compounded annual growth rate over the last 10 years (15.5%). This is above-average growth and, as I will demonstrate momentarily, there are reasons to think that the company can keep it up.
First off, many experts, including Warren Buffett, think that oil prices will be relatively high in the years ahead. What Buffett and his ilk think “high” means is a closely guarded secret, but given Buffett’s stated preference to hold stocks for at least five years, he probably thinks the average price over the next five years will be higher than the average price over the last five years.
Nobody would be overly bullish on oil if they assumed that 2019, 2020 or even 2021 price levels reflect the long-term trend. So, the oil bulls are probably banking on long-term oil prices above $80.
Alimentation Couche-Tard makes a lot of its money selling road transportation fuel, so it should profit if Buffett and others are right about oil. At the same time, it sells many non-fuel products, so it’s not as dependent on high oil prices as, say, Suncor and Cenovus Energy are.
A second reason for optimism on ATD relates to its acquisition strategy. ATD’s management tends to re-invest large percentages of their profits back into growing their business. As a result of this strategy, their company has an admittedly low dividend yield, but a great balance sheet. If management keeps up the good work, ATD’s future will be rosy.
Sell: Lightspeed
Lightspeed Commerce (TSX:LSPD) looked like a pretty good bet once upon a time. It grew at more than 100% year over year in 2020 and 2021, and made some smart moves, like diversifying away from point of sale (POS) systems and into Shopify-like e-commerce platforms. It paid a very hefty sum for these adventures though – about $136.6 million. Neither Ecwid nor any of Lightspeed’s other ventures are currently profitable, and this company is several decades old. If you feel like betting on a Canadian consumer tech success story, Shopify seems to have better prospects than LSPD does.
