Editor’s note: A previous version of this article incorrectly said Propel Holdings recently raised new funding to bolster capacity. It raised those proceeds to fund the acquisition QuidMarket, a UK fintech lender.
The S&P/TSX Composite, Canada’s leading stock market index, is on fire! With a sizzling 16.8% gain year-to-date, it’s smashing through all-time highs this October. As we hurtle towards the finish line of 2024, Canadian investors who jumped on this runaway train are grinning from ear to ear. But wait – before you think all the bargains have left the station, two top financial sector stocks are still ripe for the picking.
Power Corporation of Canada (TSX:POW) and Propel Holdings (TSX:PRL) are hidden financial sector champions that have been flexing their muscles with growing stock price momentum, yet they somehow remain tantalizingly undervalued. Let’s dive deep into these top picks and see how they could amplify your portfolio returns over the next two to five years.
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Top financial sector value stock: Power Corporation of Canada
Power Corporation of Canada is a formidable player in the financial services industry, boasting a market capitalization of $26.1 billion. This holding company commands controlling interests in several key entities, including Great-West Lifeco, IGM Financial, and two fast-growing alternative asset-management platforms. Its diverse portfolio spans insurance, asset management, and strategic investments in European and Chinese markets. Diversification contributes to POW stock’s robust financial performance, exhibited in a 14.9% compound annual growth rate (CAGR) in diluted earnings per share over the past five years.
The business is growing as assets under management soar, and its listed investees expand operations and launch new innovative financial products to a growing addressable market, while sharing ideas on how to tightly control group operating costs.
Power Corporation employs investor-friendly capital budgeting policies. It engages in share repurchase programs when its share price lags behind a growing net asset value. Stock buybacks support a growing share price and reduce the number of claims on POW stock’s future distributable cash flows.
Investors seeking income will appreciate Power Corporation stock’s attractive quarterly dividend, which currently yields 5.1% annually. With a payout ratio of 50.5% of earnings, the dividend appears sustainable, offering a reliable income stream.
From a valuation perspective, POW stock presents an intriguing value investment opportunity due to a conglomerate discount. Trading at a forward price-earnings (P/E) multiple of 9 and a price-earnings-to-growth (PEG) ratio of 0.7, the stock appears undervalued relative to its future earnings growth potential.
The company’s strategic positioning in the financial sector, combined with its international exposure, provides a solid foundation for future earnings growth and positive shareholder returns. Analysts project an impressive 13.5% compound annual growth rate in earnings per share over the next five years.
POW stock has outperformed the TSX with a year-to-date total return of 21.7%.
Propel Holdings stock
Shifting gears to a more specialized player in the financial technology space, Propel Holdings stock has been making waves with its innovative approach to lending. The fintech company is dedicated to credit inclusion, operating through its consumer-facing brands: MoneyKey, CreditFresh, and Fora Credit.
Revenue has grown at a CAGR of 59.3% over the past three years to propel an earnings growth rate of 40.1% over the same period. Faced with growing demand for its financial services, the company recently raised $115 million to fund the acquisition of QuidMarket, a fintech lender in the UK.
Propel Holdings stock has delivered impressive returns to shareholders, with a staggering 162.5% total return year-to-date, including a 22.7% return in the past month alone. Despite this strong performance, the stock maintains a reasonable valuation with a forward P/E multiple of 10.
Further, the financial sector stock augments shareholder returns with a growing quarterly dividend. The current PRL stock dividend yields 1.7% after a 40% raise this year. With a payout ratio of just 20% of earnings, there’s ample room for future dividend growth.
Investor takeaway
Power Corporation of Canada and Propel Holdings stock represent two distinct yet promising opportunities in the Canadian financial sector. Power Corporation offers a blend of stability, diversification, and income, while Propel Holdings provides exposure to the high-growth alternative lending fintech market. By carefully considering your risk profile and investment goals, you may find that one or both of these stocks could be valuable additions to your investment portfolio(s).
