After a bearish end to 2024, the TSX gathered momentum from mid-January. Investors who sold their stocks at the end of the tax year started reinvesting. The uncertainty around policy changes under Donald Trump’s presidency was also a nail-biting movement for investors, which kept them from investing in stocks.
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These momentum stocks are an immediate buy
The stock market is gathering momentum, and two stocks are keeping pace with this momentum.
Topicus.com
The share price of Topicus.com (TSXV: TOI) is gaining momentum, surging 11% since January 13. A company spun off from Constellation Software whose stock has enjoyed a long-term growth trend, Topicus.com stock has been volatile since its initial public offering in February 2021. The tech stock meltdown in 2022 pulled Topicus.com stock down. However, its four-year compounded annual growth rate (CAGR) was 20%. That’s a petty impressive return and hints that it could be walking on its parent’s path to sustainable growth.
Topicus.com acquires vertical-specific software companies in Europe with stable cash flows. It enjoys organic revenue growth of 4%. The company has net debt of €46.6 million. It has more than doubled its revenue in four years by using the cash to acquire more companies. The stock is trading at a higher valuation than its parent.
Topicus.com shares are trading at a forward price-to-earnings (PE) ratio of 49.8 times against Constellation’s 33.2 times. Its price-to-sales (PS) ratio is 9.1 times as against Constellation’s 6.94 times. The former’s high valuation is justified as its sales and earnings per share (EPS) growth rate is high. Topicus.com’s revenue and EPS surged 23% and 33%, respectively, in 2023, while Constellation’s surged 27% and 10%, respectively.
If Topicus.com maintains its 20% CAGR, the stock could double your money in five years. Its fundamentals look sound, and the volatility around revenue and EPS could normalize in the long term as the execution improves. You could grab the bull by its horns and consider buying this stock before it completes its rally.
Telus stock
The momentum is picking up in Telus Corporation (TSX: T) shares after a 30-month downturn. Its share price has jumped 4.1% since January 15, as investors are returning to the stock market for better returns. The falling interest rates could have a dual benefit for Telus. On the one hand, it could reduce Telus’ interest expense on its debt. On the other hand, it could encourage investors searching for better interest rates and slightly lower-risk investments to shift from bank deposits to dividend stocks.
This year, Telus could see both its net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) and dividend payout ratio fall and come closer to its target range. Its earnings could also grow at a faster rate because of a weak base year. A higher growth rate and improving balance sheet could keep the momentum going for this stock till the share price surges by around 35% to its average trading price of $27.
Investor takeaway
While the above momentum stocks are a buy, some stocks like BlackBerry and Manulife Financial have grown remarkably in the last six months and are trading near their multi-year high. They have already completed their bull run, and it might be too late to grab their momentum. Buying a momentum stock near its high increases the downside risk.
Next time you look for momentum buys, consider stocks for which momentum has just begun. They have reasonable valuations and trade below their 52-week highs.
