Equity markets continue to remain volatile amid a challenging macroeconomic backdrop. While inflation has cooled down, elevated interest rates have resulted in slower consumer spending, which might translate into an economic recession.
Yes, the equity markets might experience another round of selloff in the next 12 months. However, the pullback offers you yet another opportunity to gain exposure to quality growth stocks at a discount. Here are two such TSX stocks you can add to your watchlist right now.
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Computer Modelling Group stock
Valued at $955 million by market cap, Computer Modelling Group (TSX: CMG) is a computer software technology company that develops and licenses reservoir simulation software in Canada and other international markets.
CMG stock has trailed the broader markets in the past decade, returning less than 40% to shareholders after accounting dividend readjustments. The company has increased sales from $75.8 million in fiscal 2020 (ended in March) to $118.5 million in the last 12 months. While its gross profits have increased in this period, operating profit has been flat due to a steep increase in selling, general, and administrative expenses.
Analysts tracking the stock expect adjusted earnings to expand from $0.32 per share in fiscal 2025 to $0.43 per share in 2026. So, priced at 27 times forward earnings, CMG stock is not too expensive if it can drive profit margins higher and benefit from operating leverage.
The company has generated a free cash flow of $42.4 million in the last 12 months, while its dividend payouts are around $16 million, indicating a payout ratio of around 40%.
Computer Modelling Group has more than quadrupled its dividend payments in the last five years, enhancing the effective yield over time. Analysts remain bullish on CMG stock and expect it to surge over 20% in the next 12 months.
Propel Holdings stock
One of the fastest-growing TSX stocks is Propel Holdings (TSX: PRL), which is part of the highly cyclical lending sector. Propel operates an online lending platform, facilitating access to credit products, including installment loans and lines of credit under brands such as MoneyKey and CreditFresh. Moreover, it also offers marketing, analytics, and loan servicing solutions to enterprises.
Despite sky-high interest rates, Propel continues to expand its loan book, increasing its revenue from $68 million in 2019 to $316.5 million in 2023. In the last 12 months, its sales have totalled $382.4 million, an increase of 47.3% year over year.
In the June quarter, Propel Holdings reported record sales, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), and adjusted net income, surpassing $100 million in quarterly revenue for the first time. Its total originations funded stood at $144 million, up 40% from the year-ago period.
Propel’s chief executive officer, Clive Kinross, emphasized, “We and our bank partners were able to originate record new and existing customer volume even while maintaining a prudent approach to underwriting.”
The company’s stellar revenue and earnings growth have allowed it to almost triple investor returns since its initial public offering in late 2021. Despite its outsized gains, the TSX stock trades at a cheap forward price-to-earnings multiple of 12 times. In addition to its cheap valuation, Propel offers investors a dividend yield of more than 2%.
Given consensus price target estimates, analysts remain bullish and expect it to gain 33% in the next 12 months.
