Best Stocks to Buy in May 2024: TSX Financials Sector

Wondering which TSX financial stocks could see substantial growth in the future? Here are three stocks with BIG upside from here.

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The TSX Index of stocks has a plethora of financial stocks. In fact, Canada is quite well known for its highly regulated and well-managed financial industry. Whether it be its many banks, asset managers, insurance providers, or lenders, there are plenty of interesting financial companies.

If you are looking for some high-quality financial stocks to add to your portfolio, here are three to look at right now.

A TSX insurance stock with a huge growth record

Most Canadians have likely never heard of Trisura Group (TSX:TSU). With a market cap of only $2 billion, it certainly isn’t the largest insurance business. However, it makes up for it with excellent returns, strong growth, and above-average profitability.

Trisura’s stock is up 469% over the past five years. The last couple of years have been volatile. However, on average, this company has delivered for shareholders.

In Canada, it has a platform for surety, corporate, and specialty insurance. In the U.S., it has a fronting business. It recently added a platform to grow its surety and specialty insurance capacity in the States.

Trisura consistently earns a high-teens to mid-20% return on equity (ROE). It has a low ~80% operating combined ratio (incurred losses divided by premiums earned (the lower the better)).

This company is very profitable, and it still has a large market to grow into. Trisura trades at a significant discount to other similar peers in the U.S. It could enjoy a strong re-rating if it successfully executes its growth plan.

A TSX fintech stock growing like crazy

Another TSX financial stock that has recently delivered stellar results and returns is Propel Holdings (TSX:PRL). Canada does not have many fintech companies that are both profitable and growing, so this one stands out. Its stock is up 92% in 2024 alone.

Propel provides small-to-medium sized loans to the generally riskier non-prime consumer market. The lender manages the higher lending risk with a proprietary artificial intelligent (AI) underwriting platform. It factors in a wide mix of data that help give it better certainty around successful loan repayment.

Propel has been quickly growing in the U.S. However, the financial services firm just added a lending platform in Canada. It also offers a lending-as-a-service platform to other banks and financial institutions.

Propel grew earnings per share by 72% last year. It is targeting 25 to 30% loan growth in 2024. Likewise, it expects margins to expand. Earnings per share could rise by over 50% in 2024.

PRL operates in a riskier segment, but it also has a substantial reward attached. The stock can be volatile, but its valuation is not unreasonable here.

A challenger bank in Canada

EQB Inc. (TSX:EQB) operates as EQ Bank. It is known as the challenger bank in Canada because of its online-only, branchless banking and lending platform.

The bank has been able to deliver solid total returns. EQB stock is up 134% over the past five years. Its dividend per share has increased by 105% in that time.

Since it has no physical branches, it can generate a strong high-teens ROE. EQ Bank caters its loans to new Canadians, businesses, and individuals with uncommon lending characteristics. As Canada’s population has grown, EQB has enjoyed a strong rise in demand for its low-fee banking platform.

EQB is very well-managed and positioned to continue to gain market share in Canada. It trades at a discount to the Canadian big banks so it could deserve an up-rating as it proves its business model over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robin Brown has positions in Propel and Trisura Group. The Motley Fool has positions in and recommends Propel and Trisura Group. The Motley Fool recommends EQB. The Motley Fool has a disclosure policy.

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