Canadians should be optimistic about investing in domestic stocks in 2024. The TSX showed remarkable resiliency last year amid a wall of worry erected by massive headwinds like runaway inflation and high-interest rates. The country’s primary equities market delivered an 8.1% positive return in 2023 compared to the 8.7% loss in 2022.
Technology (+56%) was the top-performing sector among seven gainers, while communications services (-7.3%) led four sectors in the losing group. Some analysts note that the TSX had an impressive run in the last eight weeks of the year and almost reached an all-time high on December 27, 2023.
A bull market could materialize as inflationary winds gradually dissipate. Another factor that will drive stocks higher is the start of rate cuts soon. Many stocks that rewarded investors with gains are potential multi-baggers this year. One standout growth stock that should be on your buy list is Hammond Power Solutions (TSX:HPS.A), or HPS.
The industrial stock’s run was short of phenomenal. Hammond’s share price soared nearly 311% to $81.70 by year-end 2023 from $19.90 on December 30, 2022. Had you invested $5,000 at the end of 2022, your money would have been worth $20,527.64 by year-end 2023. However, don’t regret if you missed out on the earnings opportunity. HPS remains a strong buy ($78.21 per share) in the New Year.
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Thriving, profitable business
HPS manufactures dry-type and oil-filled transformers that vital industries use. The thriving, profitable business is the most compelling reason to invest in this $972.6 million company.
After three quarters in 2023 (nine months that ended September 30, 2023), net earnings jumped 63.5% year over year to $43.5 million. In Q3 2023, sales increased 20.5% year over year to a record $179 million, while net income rose 25.2% to $14.4 million versus Q3 2022.
Hammond’s CEO, Adrian Thomas, said, “The third quarter saw continued strong demand across our portfolio of products and services resulting in a record quarterly revenue for the company. Demand was driven by our custom power units that serve renewable and data center applications.”
Notably, the backlog in Q3 2023 increased 11.3% from Q2 2023 due to price increases and strong demand in late 2022 until the first half of 2023. Its CFO, Richard Vollering, also notes the resilient gross margins that hover over 31%.
Long-term clear vision
HPS dominates in North America, although there’s potential for economic moderation. Thus, the game plan is to expand its power quality solutions and develop distribution partners in the U.S., Mexico, and Latin America. While HPS is growing its presence in Europe and Asia, management will capitalize on the growing demand for clean and efficient energy solutions.
The standard and custom-designed products are competitive advantages as they are essential and universal in electrical distribution networks through an extensive range of end-user applications. Moreover, HPS can sell its products globally because it has manufacturing plants in Canada, the U.S., Mexico, and India.
Earn two ways
HPS has risen from obscurity following its superb performance in 2023. Besides the hefty capital gains, investors partake in the modest 0.79% dividend (quarterly payout). The board has the sole discretion to approve and declare dividends but given the low 9.7% payout ratio and thriving business, there’s room for dividend growth down the road.
