Despite the tariff disputes and macroeconomic uncertainty, the Canadian equity markets have continued their uptrend, with the S&P/TSX Composite Index hitting a new high last week and ending the week 2.7% higher. Strong quarterly earnings and expectations of interest rate cuts by the Federal Reserve of the United States appear to have increased investors’ confidence, driving the equity markets higher. Amid the improving investors’ sentiments, let’s look at two top growth stocks that you can buy under $50 for superior returns.
Source: Getty Images
Savaria
First on my list is Savaria (TSX:SIS), which posted an impressive second-quarter performance last week. The accessibility solution provider posted a revenue growth of 2.4% during the quarter amid favourable currency translation and revenue contribution from the recently acquired Western Elevator. However, organic contraction offset 0.7% of its growth.
Meanwhile, the company’s initiatives over the last 18 months to improve its procurement, pricing, and operational efficiency appear to have yielded results, with its operating margin expanding by 160 basis points to 11.8%. Further, its net income stood at $16.3 million. However, removing one-time items, its adjusted net income came in at $20.83 million or $0.29 per share, representing a 26.1% increase from the previous year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew 11.4% to $46.7 million, while its adjusted EBITDA margin expanded by 160 basis points to 20.6%.
Additionally, Savaria strengthened its financial position by improving its net debt-to-adjusted EBITDA ratio to 1.34 compared to 1.63 at the beginning of this year. Its available funds of $275 million at the end of the quarter can support its working capital, capital investments, and growth initiatives. Meanwhile, the aging population and rising income levels continue to drive the demand for accessibility solutions, thereby creating a long-term growth potential for the company. Despite the recent increases, Savaria’s valuation looks reasonable, with its NTM (next-12-month) price-to-sales multiple at 1.6. Also, it offers monthly payouts with its forward dividend yield standing at 2.59% as of the August 8th closing price. Considering all these factors, I am bullish on Savaria.
Maple Leaf Foods
Another under-$50 Canadian stock that I believe would be an excellent buy is Maple Leaf Foods (TSX:MFI), which produces and markets food products under various brands. The company reported an impressive second-quarter performance last week, with its top line growing by 8.5% to $1.36 billion. A growth of 7.5% in prepared foods, 8.5% in poultry, and 10.7% in pork operating units boosted its sales.
Meanwhile, its adjusted operating income grew over 57% to $122.8 million amid top-line growth, expansion of gross profit margin, and a decline in selling, general, and administrative expenses. An improvement in market conditions for pork, the favourable impact of volume and mix in the prepared foods and poultry segments, and an increase in operating efficiencies due to its recent investments led to the expansion of its gross margins. Meanwhile, its adjusted EPS (earnings per share) stood at $0.56, representing a 211% increase compared to its previous year’s quarter of $0.18.
MFI has also lowered its net debt level from $1.72 billion in the previous year’s quarter to $1.34 billion, while improving its net debt-to-adjusted EBITDA multiple to 2.1. The company ended the quarter with $236.1 million of cash and cash equivalents, well-equipped to fund its growth initiatives. The company is also working on spinning off its pork business into a new company called Canada Packers, which could enhance its shareholders’ value. With the shareholders approving the transaction in June, the management expects to complete the transaction by the end of this year.
Amid its solid second-quarter performance, the company’s management has raised its adjusted EBITDA guidance for this year. Now, the management expects its adjusted EBITDA to come between $680 million and $700 million compared to its earlier guidance of $634 million. Meanwhile, the company has outperformed the broader equity market this year with returns of over 67%. Despite the solid returns, its NTM price-to-earnings multiple stands at an attractive 16, making it an excellent buy.
