Market observers predict the Canadian stock market will end higher compared to 2023 and set a record high in 2025 once rate cuts start this year. Meanwhile, many stocks with obvious growth potential trade at bargain prices.
With the coming tailwind, expect Ag Growth International (TSX: AFN), or AGI, and Wajax Corporation (TSX: WJX) to break out and deliver colossal capital gains.
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Food security pure play
AGI is synonymous with food infrastructure and security. The $886 million company manufactures complete solutions and systems across five platforms: Seed, Fertilizer, Grain, Feed, and Food. It generates revenue from two core business segments: Farm and Commercial.
The Farm segment boasts equipment and accessories and uses for smart devices to monitor and automate in-bin grain quality and collect data in real time. The Commercial segment’s equipment and full-service solutions focus on the storage, handling, processing, and monitoring of bulk agriculture commodities such as grain, fertilizer, seed, feed, and food.
AGI has established a solid foundation in the agricultural sector, with its 30 manufacturing facilities in Canada, Brazil, France, India, Italy, and the United States.
In Q1 2024, revenue and net income declined 9% and 88.1% year over year to $315 million and $1.9 million, respectively. Notably, funds from operations rose 47% to $31 million compared to Q1 2023, while the order book or backlog climbed 12% year over year to a record $729 million.
AGI President and CEO Paul Householder said the first quarter results were aligned with expectations as Adjusted EBITDA and other growth usually occurs in the second half of the year. Given the massive backlog and favourable margins, the year-end profitability should be better.
At $46.48 (-7.8% year to date), the dividend offer is 1.3%. Market analysts’ 12-month average price target is $78.67, with a return potential of 69.3%.
Strong fundamentals
Wajax’s year-to-date loss is 13.5%, although at$25.89 per share, the price is 20.6% higher than a year ago. Despite the pullback, current investors partake in the 5.4% dividend yield. Given the low 38.2% payout ratio, the quarterly payouts should be safe and secure.
The $561.8 million company is one of Canada’s leading providers of diversified industrial products and services. It has a deep relationship and longstanding partnership with Hitachi Construction Machinery Americas (HCMA). Management expects investments in critical infrastructure to drive sustainable revenue growth.
In Q1 2024, revenue and net earnings declined 6.5% and 15.8% year over year to $482.3 million and $14.7 million, respectively. Its President and CEO, Iggy Domagalski, said the revenue drop was due to weak construction and forestry equipment sales in western and eastern Canada.
“Given our increased backlog of $587.1 million as at March 31, 2024, and the new HCMA financing program available March 1, 2024, stronger equipment sales are expected in the near term,” added Domagalski. Wajax’s competitive advantages include strong fundamentals in many of its markets, especially energy and mining, elevated commodity prices, and sustained customer budgeting for capital projects.
Solid investment options
Due to the nature of the businesses, small-cap stocks AGI and Wajax are solid investment options. The former is a champion in food security, while the latter provides essential products and services to vital industries.
