Despite all that is going on in the world, TSX stocks continue to perform admirably. The S&P/TSX Composite Index just hit a new all-time high yesterday, despite some near-term weakness after the U.S. took military action against Iran.
The economy and stock market have been more resilient than any market commentator could have predicted (including me). Yet, even though the TSX is soaring, there are both opportunities and challenges today.
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TSX stocks I’m buying and stocks I’d be selling
With this market dynamic in mind, here are two TSX stocks I would be looking to add and one TSX stock I’d contemplate letting go right now.
Topicus.com
The first stock I am adding right now is Topicus.com (TSXV: TOI). This TSX tech stock is down 42% in the past year. It got nailed in the SaaS apocalypse over fears about AI disruption.
Yet, lately, software stocks have been starting to get a bid, and so has Topicus. This company is a serial acquirer of niche software businesses across Europe. These tend to be very specialized offerings that are entrenched in their sectors (think education, government, and banking).
If any company can use AI to improve customer applications, it is likely themselves. This TSX stock grew revenues by 20%, and earnings before interest, tax, depreciation, and amortization (EBITDA) rose 16.5%.
It has strong 28% EBITDA margins. It trades with an 8% free cash flow yield today, which is pretty attractive compared to many other sectors right now.
Colliers International
Colliers International Group (TSX: CIGI) is another TSX stock that is down, but not out. Colliers is down 34% this year.
Like most other professional service firms, it has declined due to worries about AI threats. The drawdown is a bit hard to rationalize. Collier’s business is all about relationships, market nuance/expertise, and factors heavily entrenched in the physical world.
AI appears to be something that can help its professionals better engage with proprietary data and help streamline processes and outcomes.
Fortunately, Colliers is a diversified advisory firm. Over 70% of its income today is recurring. Engineering and project management continue to be areas of acquisition growth.
Today, Colliers trades with a forward price-to-earnings ratio of only 12 and free cash flow margin of 8%. Other than COVID-19, that is near a bottom valuation threshold. If you don’t mind being a bit contrarian, this TSX stock could be a great buy.
Telus: One TSX dividend stock I wouldn’t hold any longer
One TSX stock that I am less optimistic about is Telus Corp. (TSX: T). While it is one of Canada’s largest mobile and internet providers, it has been faced with plenty of headwinds in recent years.
Firstly, competition has ramped up with Rogers taking over Shaw. Secondly, the company splurged on capex over the past few years, leaving it with a considerable debt burden. Unfortunately, the returns on those investments have yet to materialize.
Telus has a 9.6% dividend yield today. This clearly shows that the market is skeptical about how long it can sustain that rate. The reality is, it can’t sustain it. Its dividend payout ratio is above what it collects for both earnings and cash flow.
Given the rise in satellite internet and communication networks, I only see the competition rising. That is especially true with the anticipated SpaceX initial public offering. Telus is just one stock I wouldn’t be comfortable owning, no matter how substantial the dividend yield is today.
