The Bank of Canada just announced another rate cut. While many expected the move, the supersized 0.50% cut was unexpected. The policy rate is down to 3.75%, effective October 23, 2024, and the central bank said it must keep the inflation rate at 2%.
Canadian stocks, especially in rate-sensitive sectors, will significantly benefit from the fourth rate cut since June this year. If you’re looking to invest because of this latest development, include Enghouse Systems (TSX: ENGH), Superior Plus (TSX: SPB) or Knight Therapeutics (TSX: GUD) in your buy list. These three TSX stocks are ready to explode in value following this sudden tailwind.
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Digital transformation enabler
TSX’s technology sector (+15.33%) is doing well thus far in 2024, but not Enghouse Systems. The tech stock underperforms year-to-date at $31.29 per share (-8.7%). However, the potential returns could be higher if it rebounds and you include the 3.32% yield. The dividend yield compensates for the temporary weakness.
The $1.7 billion software and services company develops and provides technology solutions to the communications & media, utility, and defense sectors. Most of the clients are undergoing digital transformation driven by Cloud, IoT, 5G, and Machine Learning AI technologies.
The two core business groups, Interactive Management and Asset Management, contribute to revenue by selling enterprise-oriented applications software. Enghouse thrives, as evidenced by the financial results after three quarters in fiscal 2024. In the nine months ended July 31, 2024, revenue and net income rose 13.9% and 24.5% year-over-year to $376.8 million and $58.7 million.
Its Chairman and CEO, Stephen J. Sadler, notes the continued growth in recurring revenue, operating profitability, and operating cash flows in Q3 2024. He said Enghouse will provide mission-critical and vertically-focused enterprise software solutions and expand organically or through acquisitions.
End of slump
Falling interest rates should end the slump of utility stocks, including Superior Plus. The small-cap stock trades at a discount (-22.2% year-to-date), although at $7.05 per share, it pays a mouth-watering 9.96% dividend. The $1.8 billion company is a distributor of propane and compressed natural gas distributor in North America. It also provides renewable energy plus related products and services.
Superior Plus delivers clean-burning fuels to residential, commercial, utility, agricultural, and industrial customers not connected to a pipeline. Certarus, a recently acquired low-carbon energy business, is the newest growth driver. Market analysts see a 41.1% upside in one year.
‘Buy’ to ‘strong buy’ rating
Market analysts have a ‘buy’ to ‘strong buy’ rating for Knight Therapeutics. Their 12-month average target is $8, which is 42.6% higher than the current share price of $5.61% (+8.09% year-to-date). The $567.8 million Montreal-based company acquires, in-licenses, out-licenses, markets, and distributes pharmaceutical and consumer health products as well as medical devices in Canada and Latin America.
Knight’s ongoing concern is to bring life-changing therapies to the 11 countries it operates. The 5.61% revenue growth to a record $182.2 million in the first half of 2024 indicates that it is on track to becoming a leading Pan-American ex-US specialty pharmaceutical company.
Imminent breakouts
With the Bank of Canada’s aggressive rate cut and news of a 1.6% inflation rate in September, the greater market — and these three stocks — could be ready to run.
