While it’s prudent to hold the majority of your equity investments in passively managed low-cost exchange-traded funds, Canadians can allocate a portion of their savings towards growth stocks that have the potential to deliver outsized gains.
Investing in growth stocks is a proven strategy to build long-term wealth and accelerate your retirement plans. Here are three such top TSX stocks you can buy and aim for $1 million in cumulative returns.
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Docebo stock
Valued at a market cap of $1.83 billion, Docebo (TSX:DCBO) is part of the e-learning segment. Docebo provides a cloud-based management system to train internal and external workforces, partners, and customers globally.
Docebo is a SaaS (software-as-a-service) company, which allows it to generate recurring sales across market cycles. It has increased sales from US$41.4 million in 2019 to US$200.2 million in the last 12 months.
An asset-light model and gross margins of over 80% have now allowed Docebo to report consistent profits and benefit from high operating leverage. This means Docebo is well-positioned to grow profit margins faster than revenue.
For instance, Docebo’s free cash flow rose to US$15.3 million in 2023, up from US$1.2 million in 2022. In the last two quarters, it has increased to US$14.7 million, giving the company the flexibility to target acquisitions and reinvest in growth.
Docebo went public in late 2019 and has since returned 279% to shareholders. It also trades 48% below all-time highs and is an enticing option for those with a higher risk appetite.
Cipher Pharmaceuticals stock
Valued at a market cap of $340 million, Cipher Pharmaceuticals (TSX:CPH) is a specialty healthcare company. Its varied range of commercial products treats acne, sinus rhythm, cholesterol disorders, and other issues.
During its second-quarter (Q2) results, Cipher Pharmaceuticals chief executive officer (CEO) Craig Mull stated, “Last week’s Natroba Acquisition should be viewed as the kick-off of our growth phase. Cipher’s revenue and earnings profile has immediately doubled, further accelerating the overall profitability of the business. Additionally, the Company now possesses a fully established and profitable U.S. platform which will allow us to add complementary dermatology and infectious disease products over time.”
Analysts expect Cipher to increase sales from $28.9 million in 2023 to $67 million in 2025. Its adjusted earnings are forecast to expand from $1.09 per share to $1.23 per share in this period.
Priced at less than 11 times forward earnings, CPH stock trades at a 30% discount to consensus price target estimates.
Brookfield Renewable stock
The final TSX stock on my list is Brookfield Renewable Partners (TSX:BEP.UN), one of the largest clean energy companies in the world. The global shift towards renewable energy is inevitable as countries are investing heavily to fight climate change. Moreover, the artificial intelligence (AI) megatrend is expected to drive clean energy demand due to the proliferation of data centres that will be used to build and train AI models.
Moreover, Brookfield Renewable offers shareholders a tasty dividend yield of 5% and is an attractive stock for income-seeking investors. Despite a sluggish macroeconomic backdrop, in the last six months, Brookfield Renewable Partners has increased its funds from operations to US$635 million, or US$0.96 per share, up from US$587 million, or US$0.91 per share, in the year-ago period.
Brookfield’s payout ratio of less than 75% suggests it has enough room to raise dividends further, deploy capital towards acquisitions and strengthen the balance sheet.
The Foolish takeaway
In addition to these three growth stocks, you can shortlist other fundamentally strong companies that have the potential to benefit from multiple secular tailwinds and an expanding addressable market. Remember that creating a diversified portfolio of quality growth stocks is crucial as it drastically lowers overall investment risk.
