2 Canadian Small Caps to Keep Your Eye on

Cargojet (TSX:CJT) and another mid-cap stock could help Canadian investors get a better value for their buck this February.

| More on:

Small-cap investing can be tricky, with greater volatility (on average) than most blue-chip stocks that most Canadians flock to. Though small-cap stocks may seem riskier, they can be sources of greater returns over the long haul, especially for the lesser-known small caps that few pay attention to. Indeed, it’s much easier to grow as a $500 million company than as a $ 500 billion company!

Further, small- and mid-cap stocks tend to trade at a greater discrepancy to its intrinsic value. In essence, Mr. Market isn’t as efficient in pricing smaller-cap stocks at their true worth. This opens up a window of opportunity for venturesome investors who seek to get a bit more bang for their investment buck.

With market volatility returning to Wall Street just in time for the spring, investors may wish to give the neglected small caps a second look while they experience considerable volatility. At the end of the day, small-cap stocks can help give your portfolio a bit of a jolt. But do be mindful of the price you’ll pay and do know that mid-cap stocks can trade at multiples below their intrinsic value range for quite some time. Indeed, investors will need to be incredibly patient with the neglected small caps.

Without further ado, consider the following two Canadian small caps that I’d look to watch going into March 2023. The following smaller-cap stocks are among my favourite names with market caps south of $2.5 billion.

Park Lawn

Park Lawn (TSX:PLC) is a deathcare company that’s grown impressively over the years, thanks in part to smart merger and acquisition moves. Over the past year, shares have sagged considerably, now down around 23% over the past year alone. Shares are off just north of 34% from their all-time highs.

Undoubtedly, recessions can weigh heavily on before-need demand. Though Park Lawn is feeling the macro headwinds, it isn’t the only one in the space that’s felt the pressure. Amid the past year of selling pressure, the firm has been making good use of its balance sheet, acquiring firms like Jacoby and Muehlebach, enhancing the firm’s growing portfolio of deathcare assets.

It’s unclear when industry pressures will fade. Regardless, the stock seems undervalued at 26.8 times trailing price to earnings (P/E). Death care may not be an exciting place to invest, but as a provider of necessary services, Park Lawn is a name that will find its footing again as the environment normalizes.

Cargojet

Cargojet (TSX:CJT) is a mid-cap stock that used to be loved by momentum investors. The cargo airline used to be a compelling way to play the rise in e-commerce. Of late, though, digital orders have begun to feel pressure. As a recession weighs, the demand for overnight shipping could continue to take a hit. Regardless, Cargojet remains a top Canadian way to play the e-commerce trend.

The stock has fallen 48% from its peak. At just 7.7 times trailing P/E, CJT stock is close to the cheapest it’s been in many years. With a capable management team and strong longer-term secular tailwinds likely to exist once macro headwinds fade, Cargojet remains a top mid-cap stock to watch.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »