Canadian small-cap stocks can be a great way to score next-level growth at fairly reasonable valuations. Not to mention that small- and mid-caps can help further your TFSA’s diversification. While the added volatility from smaller-cap names may be a concern for some, I’d argue that it’s those investors who can handle the rough patches that may very well score more favourable prices of entry. At the end of the day, volatility and risk go hand in hand, but they’re not the same thing. With a long-term horizon and a willingness to ride out the turbulence and corrections, the implied volatility can be ridden out.
In this piece, we’ll check out a few promising smaller-cap stocks that may hold the next generation of winners. Indeed, there’s nothing wrong with sticking with the tried and true blue chips (think proven large-cap stocks with durable cash flows). However, there are firms that can come from left field and deliver solid returns when adjusted for risks.
So, do ensure you put in the homework before betting big on a lesser-known small-cap. Pay extra attention to the health of the balance sheet, given interest on debt loads tends to hit the lower market cap firms harder. In any case, here are two promising mid-cap stocks worth buying or adding to the watchlist after such a turbulent March.
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StorageVault Canada
Who says mid-cap stocks have to be a riskier, choppier ride not fit for older investors? StorageVault Canada (TSX: SVI) is a $1.4 billion self-storage play with perhaps one of the soundest and most predictable cash flow streams. Indeed, smaller-cap stocks tend to be more uncertain rides, but when it comes to StorageVault, you’re gaining exposure to a firm that has a perfect formula for growth.
Indeed, Canada’s self-storage industry is quite fragmented, leaving ample opportunity for the firm to keep expanding its reach. Right now, the stock is off close to 47% from its all-time high, going for a mere $3 and change per share. For investors looking for a deep-value bargain, the name is definitely worth a second look as shares attempt to recover from a nasty past three years.
Though timing a bottom could prove tough, I think fans of the business may wish to begin dollar-cost averaging. As to whether a reverse split is overdue remains the big question. Either way, deep-value hunters should keep a close watch on the firm as it continues acquiring storage assets at compelling discounts.
Spin Master
Spin Master (TSX: TOY) is another smaller-cap stock that’s endured a rough past few years. The $2.67 billion toy company is down 55% from its 2018 highs. And while shares are taking a leg lower after consolidating for around two years, I still think the deep value to be had in the name is difficult to ignore.
The firm may be navigating rough times, but at 23.5 times trailing price to earnings, I’d be inclined to be a net buyer on the way down. The company’s latest quarter was pretty decent, with US$21.1 million in earnings for the fourth quarter. Still, investors soured on the name, likely due to the firm’s economic sensitivity. Consumer discretionary stocks are at risk in the face of recession. Once the economy turns a tide, though, TOY will be a name to watch.
