With the TSX Composite Index up 4.5% in 2024, sentiment for stocks has been relatively bullish this year. Regardless of the index or market, whenever you make a bet on a stock, you are making a bullish bet (unless you are shorting it). Every time you purchase a TSX stock, you are hoping that it will go up.
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Two reasons stocks rise: Growth in earnings and valuation
Stocks can rise for two reasons. Either their earnings per share/cash flow per share ratio increases or valuation multiple increases. Often as earnings per share increase so too will its valuation multiple. As the market sees more visibility to profitable growth, it rewards investors with a higher value on those earnings.
Some of the best stock investments are those that are growing nicely, but also trade at reasonable valuations. Many call this GARP investing (or “growth at a reasonable price”).
You buy a TSX stock that is growing profits, but the market does not yet recognize it. When it does, you can really accelerate your returns. Famous insurance investor Shelby Davis called this a “double play.” If you are looking for some bullish double plays for the long run, here are two quality stocks to buy in Canada.
Calian Group: Undervalued for its growth potential
After the early stock rally in 2024, it isn’t easy finding a bargain on the TSX. But Calian Group (TSX: CGY) is a true deal here. It is trading with a forward price-to-earnings (P/E) ratio of 11. Yet, it is growing by more than twice that rate. The market has yet to recognize this, so it’s an intriguing time to add it.
Maybe this TSX stock is misunderstood because it operates in four different segments. It has businesses in healthcare, IT/cybersecurity services, training, and specialized technologies (like nuclear, satcom, networks, and terrestrial).
While each business is growing individually, the company is starting to cross-sell services and combine offerings. This is propelling a new leg of backlog wins.
Also, recent acquisitions in Hawaii, Canada, and the U.K. have expanded its geographic, service, and customer base. Right now, it is guiding for 18% revenue growth and 35% earnings before interest, tax, depreciation, and amortization (EBITDA) growth in 2024. This TSX stock pays an attractive 2% dividend as well.
Trisura: A top-performing growth stock ready for its next phase
Speaking of another attractive GARP stock, Trisura Group (TSX: TSU) deserves to be on the list. Its stock is up 450% over the past five years. That is a 40% compounded annual return.
Trisura provides specialty and fronting insurance solutions in Canada and the U.S. It has delivered 90% compounded annual revenue growth over the past five years. Earnings per share have compounded by 40%. The company took a hit on a business write-off in 2023. However, it has started to recover nicely out of those challenges.
Despite its rapid trajectory, Trisura only trades for 14 times earnings and three times book value. This TSX stock is trading at a substantial discount to other growing specialty insurance providers.
Certainly, Trisura operates in a riskier business. However, if it can execute its expansion plans in the U.S., there is substantial value even at today’s price.
