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Here are a couple of top stocks that have the potential to double your money from price appreciation in a bull market. Without further ado, they are Chorus Aviation (TSX:CHR) and Aritzia (TSX:ATZ).
Chorus Aviation
Chorus Aviation stock has a market cap of about $588.2 million. It is a global aviation solutions provider and asset manager that focuses on regional aviation. Its business is cyclical. It’s particularly obvious if you observe its Generally Accepted Accounting Principles (GAAP) earnings over an economic cycle.
For example, during the 2020 pandemic year, the cyclical stock fell off a cliff and lost about 70% of its value, as it eliminated its common stock monthly dividend.
Last year, the company generated healthy operating cash flow of $279.5 million, an increase of about 6.8% from the “normal” year of 2019. This operating cash flow translated to substantial free cash flow of $217.2 million for 2022.
Higher interest expense is a real cost for the business, though. For example, its 2022 interest expense was about $30 million (or 40%) higher than the 2019 levels. However, its 2022 debt-to-equity and debt-to-asset ratios have improved to 2.36 times and 69%, respectively, compared to 3.87 times and 79% in 2019.
At $2.98 per share at writing, the cyclical stock trades at an absolutely cheap valuation of approximately two times cash flow. The 12-month analyst consensus price target suggests upside potential of about 47% over the near term. Longer term, it could double investors’ money from current levels in a bull market. If it restarts its dividend before then, the dividend income will be icing on the cake!
Aritzia
The fashion world can be highly unpredictable, too. Sure enough, Aritzia’s earnings have been cyclical. During the 2020 pandemic year, the stock lost up to 58% of its value from peak to trough.
Its recent results indicate that its customers still love its everyday luxury fashion. Aritzia reported its fiscal fourth-quarter (Q4) results last month with the net revenue climbing 43% year over year to about $637.6 million. The gross profit rose roughly 35% to about $242.2 million. Ultimately, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a cash flow proxy, climbed approximately 20% to $79.4 million and its adjusted earnings per share increased by 17.6%.
What about its full-year fiscal 2023 results? The everyday luxury apparel retailer witnessed net revenue rising close to 47% to almost $2.2 billion, including 35% that was e-commerce sales. The gross profit margin improved from last year’s 39.6% to 41.6%, helping push gross profit growth of about 40% to nearly $914 million. However, its net margin shrank from about 16.9% to 8.5% — no thanks to a jump in operating, interest, and income tax expenses. Ultimately, its adjusted EBITDA climbed 21% to nearly $351.2 million, and its adjusted earnings per share increased by 21.6% to $1.86.
At the end of fiscal 2023, Aritzia had 114 brick-and-mortar locations across Canada (68 locations) and the United States (46). Additionally, it sells to customers across more than 200 countries on its e-commerce website. The retailer is still expanding south of the border with the plans of opening eight to 10 new U.S. locations per year through fiscal 2027.
The roughly 37% pullback from the 52-week high of the retail stock could be a buying opportunity for a chance to double your money during a bull market.
Investor takeaway
Chorus Aviation and Aritzia are definitely stocks with above-average risk. For example, they don’t pay dividends that provide periodic returns. In a world where investors can get 6% yields from big Canadian bank stocks, investors willing to take greater risk for higher returns potential might allocate a small percentage of their capital (perhaps up to 10% of their diversified portfolios) in these kinds of stocks. Also, consider buying riskier stocks in non-registered accounts in case you need to take a capital loss, which can offset your capital gains to reduce your income tax bill.
