With the easing of Middle East tensions following announcements of a ceasefire by both Israel and Iran, the uptrend in Canadian equity markets has continued. Meanwhile, the S&P/TSX Composite Index reached a new high on Wednesday and is now trading 19.5% higher than its April lows. Amid improved investor sentiment, let’s examine these three top Canadian stocks trading under $50 that can deliver superior returns.
Docebo
Docebo (TSX:DCBO), which offers highly customizable learning solutions through its learning platform, is my first choice. The LMS (Learning Management System) market is expanding amid a shift to remote work, the development of innovative products, and the introduction of personalized learning offerings. Meanwhile, Precedence Research projects that the global LMS market will expand at an 18% CAGR (compound annual growth rate) from 2024 to 2034. Given its focus on innovation and the development of artificial intelligence-powered products, I expect Docebo to benefit from the growth of its addressable market. Besides, its solid customer base and rising average contract value would provide stability to its financial performance.
However, the Toronto-based company has been under pressure over the last few months due to investors’ concerns that increasing competition could slow down its growth in the coming years. It has lost more than 50% of its stock value compared to its 52-week high. Additionally, the steep correction has dragged its valuation down to attractive levels, with the company currently trading at an NTM (next 12 months) price-to-earnings multiple of 22.7. Considering its healthy growth prospects and discounted stock price, I believe Docebo would be an excellent buy at these levels.
Savaria
Savaria (TSX:SIS) is another under-$50 stock that I am bullish on due to its solid financials, growing addressable market, and growth initiatives. The company reported revenue of $220.2 million in its recently announced first-quarter earnings, representing a 5.2% increase from the same quarter of the last year. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 17.2%, while its adjusted EBITDA margin expanded by 190 basis points to 18.5%. The accessibility device maker’s financial position also improved, with its net debt-to-adjusted EBITDA multiple declining from 1.6 in the previous year’s quarter to 1.5. At the end of the first quarter, the company had $254.7 million of available funds. Therefore, it is well-equipped to fund its growth initiatives.
The expansion of the aging population has driven the demand for accessibility and patient care solutions, thereby expanding the demand for Savaria’s services. Meanwhile, the company is developing innovative products, increasing its production capacity, and enhancing operational efficiencies through its “Savaria One” initiative, thereby strengthening its footprint. Additionally, the company offers a monthly dividend of $0.045/share, translating into a forward dividend yield of 2.8%.
Hydro One
Another under-$50 Canadian stock I am bullish on is Hydro One (TSX:H), a pure-play electric transmission and distribution company. It has a nominal exposure to commodity price fluctuations, while 99% of its business is rate-regulated, thereby shielding its financials from economic cycles. The electric utility company has expanded its rate base at an annualized rate of 5.1% since 2018, thereby driving its financial performance and stock price. Over the last five years, H stock has returned 123% at an annualized rate of 17.4%. Additionally, the stock has been increasing its dividends for the past seven years at an annualized rate of 5.2%, while its forward dividend yield currently stands at 2.74%.
Moreover, Hydro One continues to expand its rate base with a five-year capital reinvestment plan of $11.8 billion, which spans from 2023 to 2027. These investments would grow its rate base at an annualized rate of 6.6% over the next three years. Along with these growth prospects, the company’s cost-cutting initiatives could boost its profitability. Propelled by these growth drivers, the company’s management anticipates annual EPS (earnings per share) growth of 6–8% through 2027. The management is also optimistic about increasing its dividends at an annualized rate of 6% over the next three years, thereby making Hydro One an attractive investment.
