As the new year unfolds, it’s a great time to evaluate your investment strategy and add a few high-quality small-cap stocks with high growth potential to your portfolio. Small-cap stocks can significantly enhance your portfolio’s return and help diversify risk.
Small-cap stocks represent companies that are in the early stage of growth and have the potential to deliver outsized returns. However, these stocks are highly volatile. Thus, investors should look for Canadian stocks with solid fundamentals and ample growth opportunities to maximize their returns. With this background, here are the top Canadian small-cap stocks with big potential.
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Small-cap stock #1
Canadians looking for top small-cap stocks could consider adding WELL Health (TSX: WELL). This digital healthcare company is growing rapidly, delivering profitable growth, and trades at an attractive valuation, making it a no-brainer addition to your portfolio.
WELL Health’s large network of clinics, omnichannel patient services, and focus on developing and selling proprietary software and technology solutions are driving patient visits to its platform, supporting sales, and helping the company generate significant positive cash flows. Further, the company continues to benefit from its aggressive acquisition strategy, which expands its offerings and accelerates its growth rate.
Looking ahead, WELL Health’s solid acquisition pipeline and a significant growth opportunity in the high-margin affiliate clinic licensing business augur well for growth. While WELL Health is poised to deliver solid financials, the digital healthcare company is focusing on bolstering its shareholder value by lowering share dilution and minimizing the issuance of additional shares. The company is also reducing its debt and boosting its earnings through the cost-optimization program.
It trades at the next 12-month enterprise value (EV)-to-sales multiple of two, which appears attractive compared to its historical average.
Overall, WELL Health is poised to deliver stellar growth, enhance shareholder value, and offer compelling value near the current market price.
Small-cap stock #2
CES Energy Solutions (TSX: CEU) is another attractive small-cap stock with big potential. This vertically integrated company manufactures advanced consumable chemical solutions for the energy sector. CES has significant exposure to the North American oil and gas industry, where drilling operations are becoming more complex, and production is ramping up. This is driving massive demand for CES’s specialized chemicals, which, in turn, drives its financial performance and stock price.
Supporting CES Energy’s bull case is its asset-light business model, which is designed to weather the industry’s ups and downs. The company’s counter-cyclical balance sheet ensures steady cash flow throughout industry cycles, while its recurring revenues from production chemicals provide reliable financials in all market conditions.
Several favourable industry trends further support CES’s growth prospects. Factors like longer lateral drilling, intensive hydraulic fracturing, and pad optimization push oilfield operators to seek advanced chemical solutions, which will benefit CES. Moreover, as energy companies look for greater efficiency, employing faster drilling techniques and extending the reach of wells, CES remains well-positioned to capture a growing market share.
CES is well-positioned to deliver solid growth, led by stable upstream activity, the growing adoption of advanced chemical technologies, and heightened service intensity. Moreover, favourable commodity pricing across North America acts as a tailwind. In summary, CES is poised to deliver stellar growth, which will boost its share price and enable it to enhance its shareholders’ value.
