The TSX Composite Index has delivered an impressive 20.4% gain over the last year, fueled by optimism over easing inflation and expectations of further interest rate cuts. While many stocks thrived in 2024, not every fundamentally strong company followed the rally. Some businesses with robust growth potential underperformed the broader market, creating value opportunities for long-term investors to generate exceptional returns.
In this article, I’ll talk about two such TSX champions that seem poised for outstanding long-term performance.
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Enghouse Systems stock
Enghouse Systems (TSX: ENGH) is a top TSX stock from the software sector, focusing on vertically integrated enterprise solutions. Despite underperforming the broader market in 2024 with a 24.9% decline in stock price, this Markham-based firm remains fundamentally strong, which should help it stage a handsome recovery.
In its fiscal year 2024 (ended in October), Enghouse achieved a major milestone with revenue surpassing $500 million with a 10.7% YoY (year-over-year) increase. This growth was driven by robust performance in its recurring revenue streams, especially SaaS (software as a service) and maintenance services, which now make up about 69% of its total revenue. The company’s recurring revenue grew by 16.4% YoY, showcasing its continued efforts in transitioning to predictable and scalable income sources.
Enghouse’s profitability metrics also reflected its resilience, with its adjusted annual net profit surging 12.6% from a year ago to $81.3 million, helping it maintain a healthy 16.2% net profit margin. With record cash reserves of $274.2 million and no external debt, Enghouse has enough resources to pursue strategic acquisitions while rewarding shareholders with steady dividends. At the current market price of $27.28 per share, ENGH stock offers a 3.8% annualized dividend yield.
Although it’s true that the company has faced headwinds like declining perpetual license revenue in recent quarters, Enghouse’s focus on organic growth and strategic acquisitions positions it well for long-term growth.
Stella-Jones stock
Stella-Jones (TSX: SJ) could be another attractive TSX stock that stands out as a reliable player in the infrastructure sector. If you don’t know it already, this Saint Laurent-based company currently has a market cap of $3.9 billion and focuses on pressure-treated wood products essential for utilities and railways. Although its stock price has dipped 17% over the past year to $70.75 per share, its long-term outlook remains robust, making it a great stock for patient investors.
In the third quarter of 2024, Stella-Jones registered a 3.6% YoY drop in its sales to $915 million. This decline was mainly driven by lower volumes in utility poles, railway ties, and residential lumber. Nevertheless, higher pricing helped the company partly offset the negative impact of these negative factors.
Despite these headwinds, however, Stella-Jones achieved an adjusted quarterly EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 17.7%, supported by its strong operational efficiencies.
Stella-Jones expects its sales to rise to $3.6 billion by 2025 and its annual EBITDA margin to exceed 17%. Interestingly, the company’s continued focus on the utility poles segment, which contributed 49% of sales last quarter, is supported by long-term contracts with utilities making significant infrastructure investments. This is one of the key reasons why, despite the recent weakness, I expect SJ stock to offer a good mix of stability and growth to long-term investors.
