The Canadian equity markets were on an uptrend last week, with the S&P/TSX Composite Index rising 1.5%. Also, the index is up around 14.5% year-to-date amid solid quarterly performances and signaling from the United States Federal Reserve’s Chairman, Jerome Powell, of a possible interest rate cut next month. Amid improving investors’ confidence, let’s look at two under-$50 Canadian stocks that have the potential to deliver oversized returns over the next three years.
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Maple Leaf Foods
Maple Leaf Foods (TSX:MFI), which produces and markets food products primarily in Canada, the United States, and Asia, has delivered impressive returns of 78.5% this year. Its solid quarterly performances and healthy growth prospects have supported its stock price growth. In the recently reported second-quarter earnings, its revenue grew 8.5% to $1.36 billion. The growth across its prepared foods, poultry, and pork segments supported its topline growth.
Along with topline growth, the food producer’s expanding gross margins and lower SG&A (selling, general, and administrative) expenses drove its adjusted operating earnings by 57.2% to $122.8 million. Gross margins expanded from 10.5% to 17.3%, driven by the higher mark-to-market valuation of its biological assets, stronger pork market conditions, favourable volume and mix in the prepared foods and poultry segments, and efficiency gains from recent investments.
Further, the company’s adjusted EPS (earnings per share) came in at $0.56, representing a 211.1% increase from the previous year’s quarter. Also, its free cash flows rose from $27 million to $216 million. It also lowered its net debt levels from $1.7 billion to $1.3 billion, with its net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) multiple improving to 2.1.
Additionally, MFI ended the quarter with cash and cash equivalents of $236.1 million, thereby well-equipped to fund its growth initiatives. Moreover, the company continues to grow its product offerings, thereby expanding its market share in the prepared meals and plant protein categories. Further, it is also planning to spin off its pork business into a new entity, Canada Packers, a move that could unlock additional value for shareholders. With shareholders’ approval already received, management expects to complete the deal by the end of this year.
MFI has also rewarded its shareholders by raising its dividend at an annualized rate of 11.6% for the last 10 years and currently offers a forward dividend yield of 2.7%. Besides, it currently trades at an attractive NTM (next 12 months) price-to-sales multiple of 0.8, making it an attractive buy.
Docebo
Another under-$50 Canadian stock that I am bullish on is Docebo (TSX:DBO), which offers an end-to-end learning platform to enterprises to expand their operations and personalize their learning across their use cases. Amid the growing adoption of remote working and learning, the digitization of business processes, and technological advancements, the demand for LMS (learning management system) solutions is rising, thereby expanding the addressable market for Docebo.
Moreover, the company is focusing on developing artificial intelligence-powered products and features to strengthen its position amid rising competition. Meanwhile, the management expects its 2025 revenue to grow by 10–11%, while its adjusted EBITDA margin could come in between 17–18%. Besides, the company has been under pressure over the last few months amid the departure of key executives and rising competition. DBO stock has lost over 42% of its stock value and currently trades at a reasonable NTM price-to-earnings multiple of 22. Considering all these factors, I believe Docebo can deliver oversized returns over the next three years.
