Safe sectors experiencing a recovery can offer a great way to achieve momentum in growth stocks. These tend to combine stability with potential upside. Sectors like utilities, consumer staples, and healthcare are known for being resilient during economic downturns.
When these sectors start to rebound, growth stocks often benefit from renewed investor confidence, thus making them a safer bet for growth. By focusing on companies in these sectors that are showing signs of recovery, investors can tap into consistent returns – all while still benefiting from growth potential, especially as market conditions improve.
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NOA
One example is North American Construction Group (TSX:NOA). NOA has seen positive momentum on the TSX due to several strong operational highlights. For instance, the acquisition of the MacKellar Group in Australia contributed to record-breaking quarterly revenue of $403.4 million – a significant jump from $233.4 million a year earlier. This diversification into Australia, combined with robust equipment utilization in the region, has solidified NOA’s position as a leading contractor in key mining markets. The growth stock’s geographical expansion and strategic partnerships have created a strong platform for future growth.
In addition to revenue growth, NOA posted record adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $101.1 million, with margins of 25.1%. This marks a notable improvement from the previous year’s $85.9 million EBITDA. While margins dipped slightly due to project losses at Nuna Group, restructuring initiatives are underway to address these challenges. The growth stock’s efficient operations across both Australia and its oil sands operations in Canada have enabled steady cash flows. In the most recent quarter, $160.9 million was generated from operating activities.
Despite some challenges, NOA remains valuable due to its solid financial footing and long-term contracts, such as a recent five-year, $375 million agreement in Queensland, Australia. With a robust contractual backlog exceeding $3 billion and a dividend yield of 1.6%, NOA presents an attractive investment, especially for those looking for growth and stability in the construction and mining services sector.
Dexterra
Infrastructure management company Dexterra Group (TSX:DXT) is gaining momentum as well, reflecting strong financial performance and strategic moves. In 2023, Dexterra posted record revenues of $1.1 billion, a 15% increase year-over-year, driven by solid growth in its Integrated Facilities Management (IFM) and Workforce Accommodations, Forestry, and Energy Services (WAFES) divisions. The growth stock also saw impressive Q2 2024 revenue growth of 18.1% year-over-year, reaching $253.6 million. This growth was fuelled by high activity in natural resource markets and its recent acquisition of CMI Management in the U.S., which expanded Dexterra’s IFM presence.
One of the key drivers of Dexterra’s value is its strong free cash flow (FCF). This improved significantly in 2024, hitting $10.1 million year-to-date. With Adjusted EBITDA consistently converting to about 50% in FCF, the growth stock has a solid foundation to return value to shareholders, including through dividends. Dexterra declared a Q3 2024 dividend of $0.0875 per share, maintaining a healthy yield of 5.5% at writing. The company’s ability to manage debt while generating strong cash flow has kept it attractive to investors.
Further adding to Dexterra’s momentum is its strategic decision to divest its Modular business for $40 million, thereby allowing the growth stock to focus on its core strengths. This move should help streamline operations and enhance profitability as Dexterra continues to grow its IFM and WAFES segments across Canada and the U.S. With strong cash flow, a focused business strategy, and continued growth in core sectors, Dexterra remains a valuable stock for investors seeking stability and dividends.
