Equities as an asset class have showcased an ability to generate inflation-beating returns for long-term investors. Canadians should create a diversified portfolio of fundamentally strong companies to deliver outsized gains over time while lowering investment risk. Keeping this in mind, here are my five favourite stocks to buy right now.
Shopify stock
Down almost 50% from all-time highs, Shopify (TSX: SHOP) stock has already returned over 3,300% to shareholders since its initial public offering in mid-2015. Shopify provides a robust platform that helps merchants and businesses to create and enhance their online presence.
Like most other e-commerce companies, Shopify experienced strong demand amid COVID-19, increasing sales from US$1.58 billion in 2019 to US$4.6 billion in 2021. While its sales growth has decelerated in the last three years, the e-commerce giant has increased revenue by 23.2% to US$7.76 billion in the last 12 months.
Moreover, its focus on operational efficiencies has meant Shopify’s operating margin has improved to 13.8% in the second quarter (Q2) of 2024, up from 3.7% in 2023. Further, its free cash flow in the last 12 months has totalled more than US$1.28 billion, compared to US$905 million in 2023.
EQB stock
Among the fastest-growing digital banks in Canada, EQB (TSX: EQB) is valued at $4 billion by market cap. With an average return on equity of over 15%, EQB has grown its book value by 13-15% annually in recent years.
A widening earnings base has allowed EQB to increase its dividends by double-digit percentages yearly in the past decade. It currently pays shareholders an annual dividend of $1.88 per share, indicating a forward yield of 1.8%. Priced at 8.6 times forward earnings, EQB stock is quite cheap and remains a compelling investment at the current multiple.
Propel Holdings stock
Another undervalued TSX stock part of the cyclical lending sector is Propel Holdings (TSX: PRL). Propel offers a fintech lending platform to facilitate credit products such as installment loans and lines of credit.
In Q2 of 2024, Propel increased the following:
- Revenue by 49% to $106.8 million
- Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 67% to $30.4 million
- Adjusted net income by 82% to $15.6 million
It ended Q2 with a return on equity of 38%, up from 26% in the year-ago period. Despite these impressive growth numbers, Propel stock trades at a cheap forward price to earnings multiple of 12.6 times.
Broadcom stock
A semiconductor giant, Broadcom (NASDAQ: AVGO) is among the largest companies in the world and part of the artificial intelligence megatrend. Broadcom recently hiked its guidance for artificial intelligence sales as it is part of the segment that addresses demand from hyperscalers. Basically, these hyperscalers are investing heavily in large language models to create robust AI platforms.
In fiscal 2024 (ending in October), Broadcom expects AI sales at US$12 billion, above its previous estimate of US$11 billion. Broadcom designs and develops semiconductor chips and infrastructure products that have experienced strong demand from big tech companies.
Priced at 28 times forward earnings, AVGO stock is not too expensive given annual earnings growth is forecast at 20% through fiscal 2028.
Brookfield Asset Management stock
The final stock on the list is Brookfield Asset Management (TSX: BAM), one of the largest asset managers globally. Brookfield Asset Management raised US$68 billion of capital in Q2 of 2024, bringing its total assets under management to almost US$1 trillion.
Brookfield Asset Management continues to grow via partnerships and has collaborated with Oaktree, a premium credit manager. In 2024, it also formed the Brookfield Credit Group to incorporate private credit and direct lending funds, managing roughly US$300 billion of credit assets.
Private Equity is another major business segment for Brookfield Asset Management. Since the inception of its private equity fund offerings, the segment has generated a net internal rate of return of 21%, which is exceptional.
With a forward dividend yield of 3.2%, BAM stock trades at a price-to-earnings multiple of 28.3 times, which is not too expensive.
