The Top Small-Cap Canadian Stocks to Buy in March 2023 – Loans for Stock in Canada

On March 28, 2023

Just about every serious investor agrees. Small-cap stocks are integral to a smart, diversified portfolio. They offer too much return potential to be ignored.

Various studies prove the best Canadian small-cap stocks tend to outperform larger Canadian stocks over the long term.

There are several reasons for this, including better growth potential, more attractive valuations, momentum potential when investors fall in love with an individual stock, and lower levels of liquidity.

What exactly is a small-cap stock?

You’ll often hear the term small-cap thrown around loosely. Many investors will refer to stocks as small caps when they aren’t.

The true definition of small-cap companies is ones that have a market capitalization of $300M to $2B. A company with a market cap of less than $300M is technically a micro-cap company. Compare this to large-cap stocks, which can have market caps over $1 trillion.

Another common misconception is that small-cap stocks must trade on smaller exchanges like the TSX Venture Exchange. In reality, many small-cap Canadian stocks, including every single one we discuss below, trade on Canada’s primary index, the Toronto Stock Exchange. Plenty of small-cap stocks are trading south on the New York Stock Exchange as well.

Suppose you’re new and just learning how to buy stocks. In that case, the secret to crushing the overall stock market using small-cap stocks is identifying companies with significant potential that many other investors haven’t identified.

Small-time investors like you and me can quickly build up a significant position in the company and then wait until institutional investors discover the name. That’s when the real magic starts to happen.

However, they do require more patience in a volatile market. Canadians must understand that small caps are not for those who have low-risk tolerances. They can have large swings in price, and Wall Street can be pretty vicious during times of uncertainty.

If you’re still interested, let’s take a closer look at seven of the best Canadian small-cap stocks, the kinds of companies that can put a real jolt into your portfolio.

The top Canadian small cap stocks to be buying right now

Goeasy (TSE:GSY)
Pollard Banknote (TSE:PBL)
Park Lawn (TSE:PLC)
Automotive Properties REIT (TSE:APR.UN)
A&W Royalty (TSE:AW.UN)
AcuityAds Holdings (TSE:AT)

Goeasy (TSE:GSY)

Goeasy Ltd. (TSX:GSY) has quietly grown into Canada’s top alternate finance company. It boasts operations nationwide, millions of customers served, and some exceptional long-term growth.

The product that sent Goeasy to the stratosphere is its unsecured loan with a whopping 30%+ interest rate. This may seem excessive to you or me.

The company has grown its top line from just $67M in 2001 to more than $1B to close out 2022.

The bottom line grew even faster, increasing from $0.11 per share to over $8.61 per share during the same time. This might be why Goeasy has returned 822% to its shareholders since 2001.

Analysts expect the torrid growth rate to continue, too, with earnings projected to surpass $14 per share in 2023. That right there is the small-cap potential I’ve been talking about.

Management’s ultimate goal is to dominate the non-prime credit market in Canada, a segment the company estimates is worth some $30B annually. Besides its trademark loan, the company offers loans secured by real property and furniture financing. It also recently got into auto-financing as it continues to expand its overall product portfolio.

The company can also sell ancillary products with loans, including layoff insurance and life insurance on secured loans. It has barely begun to tap this lucrative revenue source.

Despite its growth potential, Goeasy’s valuation has historically been cheap. The company trades at just 12 times trailing earnings at the time of writing but has traditionally traded in the 12.2-12.5 range. The market is likely pricing in a recession. However, patient investors could be rewarded.

Pollard Banknote (TSE:PBL)

Pollard Banknote (TSX:PBL) manufactures, develops, and sells lottery and charitable gaming products to customers worldwide.

It’s Canada’s largest provider of instant-win scratch tickets. It offers lottery services to various jurisdictions across North America, including most Canadian provinces, Michigan, Maryland, Arizona, and several other states.

Approximately two-thirds of the company’s revenue comes from the United States.

Scratch tickets aren’t a sexy business, but Pollard and its partners are working hard to increase the number of tickets sold and the total revenue generated from ticket sales.

It does this by constantly redesigning tickets and making retail displays more enticing. It’s working, a win for both Pollard and cash-starved governments. Long-term growth has been outstanding. From 2010 to 2021, Pollard grew EBITDA from $18.2M to $71.65M, nearly quadrupling profits in 11 years.

The main issue with Pollard right now, and the reason for its drastic decrease in price as of late, has been forward outlook, a hit to earnings, and significant headwinds regarding material costs. The company set a record in 2021 regarding the top line, but earnings got smashed, coming in 59% lower than Fiscal 2020.

As prospective investors, however, we’re not concerned with what has happened in the past. Did the market get way too optimistic with Pollard? Absolutely. But we’re looking to see what we are paying today for growth in the future. And in this regard, valuations for Pollard have dipped to the point it’s looking attractive again.

The main issue with Pollard is its limited sources of materials needed to make its scratch tickets. As a result, it is at the mercy of raw material prices which could impact the bottom line over the short term. However, if you’re patient, I think Pollard will return to previous growth levels.
Analysts have double-digit earnings growth expectations for Pollard for the next few years.

Park Lawn (TSE:PLC)

They say the only things inevitable in life are death and taxes. There’s no way to invest in the latter, so we’re stuck trying to profit from the other predictable market, death.

Park Lawn Corporation (TSX:PLC) is the largest Canadian-owned funeral, cremation, and cemetery provider with a portfolio of over 270+ locations. This is a Canadian-traded company, but most of its sites and revenue are generated south of the border. It even started reporting in USD in 2022.

Death is a pretty exciting growth business. North America’s aging population means annual deaths should roughly double between 2014 and 2044. Remember, there’s a giant glut of more than nine million baby boomers in Canada alone, who aren’t getting any younger.

Park Lawn is also a growth-by-acquisition machine, gobbling up funeral homes as fast as possible. If you’ve ever dug through a quarterly report by the company, you know it is often making five or more acquisitions a quarter. All small, tuck-in acquisitions.

This type of acquisition strategy is why the company recently issued its new 4-year outlook, which it expects to grow 60-70%.

The North American funeral market is still incredibly fragmented; there will be ample opportunity for the company to continue its torrid growth pace. The death care industry is worth over $20B a year—Park Lawn’s annual revenue checks in at a fraction of this.

Another potential growth avenue is margin expansion. Margins have been steadily expanding over the last few years; look for this trend to continue boosting the bottom line. Finally, the company pays a monthly dividend that yields in the mid 1% range.

Automotive Properties REIT (TSE: APR.UN)

Speaking of industries that are consolidating, Canada’s car dealership sector will experience a significant shift in the next 5-10 years as small independent owners of one or two dealerships sell out to larger interests.

To put this shift into perspective, Canada has over 2,000 car dealerships. In contrast, the largest dealership operator owns less than 100 locations.

The best way to play this trend isn’t to own the dealerships, which are volatile businesses susceptible to the overall economy.

The ideal investment is to load up on Automotive Properties REIT (TSX:APR.UN), which buys the underlying real estate and then leases it back to the operating companies.

Automotive Properties has posted some impressive growth since its 2015 IPO, more than doubling the size of its portfolio to over 76 different properties, spanning more than 2.5M square feet of gross leasable space.

It has also successfully diversified away from Dilawri, its primary tenant, who was responsible for 100% of its rent when the company first appeared on the TSX. Many larger dealership operators are tapping Automotive Properties to buy some of their underlying real estate. The cash is then used to purchase other dealerships.

It’s a win-win for both parties. These operators then sign long-term leases of a decade (or longer), giving investors fantastic rent stability.

Usually, a small-cap stock growing as fast as Automotive Properties doesn’t offer much of a dividend. All spare cash is invested back into growth. This company is a true outlier, offering investors a yield in the high-6 % range.

Remember, this is a REIT, so it doesn’t necessarily have the explosive potential that a stock does, as it has to give most of its profits back to shareholders.


A&W Revenue Royalties Income Fund (TSX:AW.UN) owns the trademarks for Canada’s second-largest burger chain, trailing only McDonald’s. The chain has more than 1000 restaurants from coast to coast.

Although royalty companies like A&W are generally yield plays – since the company’s compensation for owning the trademarks is first dibs at the royalties paid on sales – A&W has followed a timeless method to generate substantial capital gains as well.

It focuses on serving delicious food made from the best ingredients to customers willing to pay more for quality. The strategy has worked. AW has turned a $10,000 initial investment into something shy of $18,000 over ten years, including dividends.

A&W also has a history of using innovative promotions to drive the top line. Think of things like its Beyond Meat burger, grass-fed beef, or hormone-free chicken. Even if you disagree with the strategies utilized by A&W, it’s hard to deny that it’s working very well. The company is also a relatively strong inflation play, as its royalty model doesn’t expose it to the costs of running the restaurant.

Steady same-store sales growth and further expansion of the chain’s restaurant footprint have helped A&W deliver consistent dividend increases. It was unfortunate that when this company hit Dividend Aristocrat status, the pandemic hit and caused it to slash its distribution.

However, please make no mistake about it; A&W quickly made up for lost distributions and then some. Shortly after the pandemic, it issued special distributions and consecutive raises to return to its pre-pandemic distribution. A&W will likely return to Aristocrat status in half a decade.

The stock has a current yield in the mid-5 % range, an excellent payout compared to its long-term growth potential. Plus, as a bonus, it pays out monthly.

AcuityAds Holdings (TSE:AT)

Let’s start this out by prefacing one thing. The run-up in AcuityAd’s pricing in January 2021 was an anomaly, much like many small-cap stocks.

It is doubtful those price points will get touched again in the near future. We need to separate ourselves from the fact that this Canadian small cap got that high at one point to avoid unrealistic expectations.

AcuityAd’s business includes providing targeted digital media solutions that enable advertisers to connect with their audience across online display, video, social and mobile campaigns.

Its solutions include Illumin, its marketing platform; Attention Advertising; and Audience Solutions. The company generates the majority of its revenue in the United States.

The company’s Illumin platform is expected to be a game changer; for the most part, it has been. It is estimated that $82B of capital is wasted in the ad industry due to poor targeting and optimization. Illumin looks to eliminate this, and advertisers will flock to the platform if it can.

The company has gone through some significant headwinds over the last year. Because a lot of its revenue is generated by hospitality, travel, and automobile companies, cutbacks due to the pandemic and supply chain issues were severe.

It is expected to return to double-digit growth in 2023 as the pandemic subsides. If a recession can be avoided, I’d imagine these estimates will be revised upwards.

Keep in mind, AcuityAds is profitable. This is a rarity for a company in the early stages of growth. It has a large cash balance, which it should be able to utilize to buy back shares at a discount or acquisitions.


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Original Article: Read More

Original Source: Stocktrades

Categories: Top Canadian Stocks, Automotive Properties REIT | TSE:APR.UN, Goeasy Ltd | TSE:GSY, Knight Therapeutics | TSE:GUD, Park Lawn Corporation | TSE:PLC, Polaris Infrastructure Inc | TSE:PIF, Pollard Banknote | TSE:PBL

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