2022’s Top Small Caps on the TSX: Are They Buys Today?

These top small-caps were some of the few gainers on the TSX in 2022. But are these stocks worth buying in 2023?

| More on:

2022 was a rough year for Canadian stocks, with most losing value throughout the year. There were only a handful of non-energy stocks on the TSX that managed to gain value through 2022 and even fewer small-cap stocks.

A small-cap stock is defined as any company with a market cap between $250 million to $2 billion. Therefore, many of these stocks are still relatively new, up-and-coming businesses.

And because the majority of small-cap stocks are still in the growth stage and don’t quite dominate their industries or sectors yet, there is far more risk in investing in these companies as opposed to larger, more established blue-chip stocks.

The fact that some of these companies earned impressive returns through 2022, when the TSX lost over 8%, shows how well these stocks have been performing.

Let’s look at two of the best-performing small-cap stocks on the TSX in 2022 and whether they continue to offer an attractive buying opportunity today.

A top biopharmaceutical stock with significant growth potential

One of the top-performing small-cap TSX stocks in 2022 was BELLUS Health (TSX:BLU). There is a tonne of excitement and anticipation for BELLUS, as it continues to move through the clinic stages to approve its lead product candidate, BLU-5937.

BLU-5937 is an oral therapy designed to reduce cough frequency in patients with refractory chronic cough. So far, BELLUS has completed its Phase II trial and is focused on moving forward and initiating its Phase III program. The stock is also exploring using BLU-5937 in other patients that experience cough hypersensitivity.

It’s crucial to note, though, that as much potential as BELLUS has, the stock is also extremely risky due to it being in such an early stage.

At this point, BELLUS has almost no sales, and therefore the direction of the share price will depend heavily on the outcomes of its future trials.

With that being said, though, if you have a high tolerance for risk and a long-term investing horizon, BELLUS could offer significant growth potential. Right now, the three analysts that cover BELLUS all rate it a buy, and its average analyst target price sits at over $26.50. That’s a premium of roughly 140% from its current market price.

Therefore, if you’re looking to buy one of the highest potential small-cap stocks on the TSX, BELLUS is one of the best high-risk, high-reward stocks to consider.

A top small-cap stock to help protect your capital in 2023

While BELLUS managed to gain value in 2022 as a high-risk stock, another small-cap TSX to consider if you’re looking for a lower-risk stock is North West Company (TSX:NWC).

North West is a consumer staple stock that operates a portfolio of supermarkets and grocery stores, mostly in remote regions in northern Canada and Alaska.

Because North West is a consumer staple, one of the most defensive industries there is, it makes sense that the stock rallied and gained value, as the economic environment worsened.

The company sells essential goods such as food and other household products. Therefore, not only can North West expect fewer impacts on its sales than a discretionary business, but it can also pass on cost increases to its customers easier without having to worry about the impact on its business.

Plus, in addition to the fact that it’s a consumer staple stock, North West also has incredible operations with impressive verticals. This allows it to earn strong profit margins, which, in turn, makes its dividend ultra-safe.

Today, the stock trades just over 5% off its high, and its dividend offers a yield of roughly 4.25%. Furthermore, the stock currently trades at a forward price-to-earnings ratio of just 13.8 times, which is below its five-year average of 15.1 times.

So, if you’re looking for a high-quality, small-cap stock on the TSX, North West is an ideal investment to both protect and grow your capital in this market environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has positions in North West. The Motley Fool recommends North West. The Motley Fool has a disclosure policy.

More on Investing

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

money goes up and down in balance
Investing

Unveiled: 2 Must-Watch Stocks for Your TFSA Before 2025

Value-conscious TFSA investors should consider Bank of Nova Scotia (TSX:BNS) and another great dividend pick.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Investing

Fortis Rose 11% in 90 Days, and it’s Still a Good Stock to Buy Now

Here's why Fortis (TSX:FTS) is among the top dividend stocks I think long-term investors want to own in this current…

Read more »