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3 Stocks That Could Beat the Market as Interest Rates Fall

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Written by Rajiv Nanjapla at The Motley Fool Canada

Inflation in the United States rose to 3.5% in March compared to 3.2% in February. Meanwhile, economists predict Canada’s inflation will increase from 2.8% in February to 3% in March. Although the inflation is not easing as expected, investors are hopeful that the Federal Reserve of the United States could slash its benchmark interest rates at some point this year. Lower interest rates benefit growth stocks, which require higher capital to fund their growth initiatives.

Meanwhile, I believe the following three stocks could outperform the broader equity markets this year.

goeasy

goeasy (TSX:GSY) has outperformed the broader equity markets this year, delivering returns of 5.3%. Its solid quarter performance and growth initiatives have increased investors’ confidence, driving its stock price. The company is witnessing solid loan originations due to rising demand, thus expanding its loan portfolio to $3.65 billion as of December 31. The company’s net charge-off rate and provisions for future credit losses fell in the December-ending quarter compared to its previous year’s quarter. Further, the expanding loan portfolio has lowered its weighted average interest rate from 40% in 2019 to 30.3% in 2023.

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Despite solid growth over the last two decades, goeasy has acquired a small percentage of its addressable market. Meanwhile, the company is developing new products, expanding geographically, and building digital infrastructure to drive growth and improve operating efficiency in the coming quarters.

The company’s management expects its loan portfolio to expand by 65% to reach $6 billion by 2026. The expansion could grow its top line at 12.9% while improving its operating margin from 38.1% to 41%. The company is also a Canadian Dividend Aristocrat that has raised its dividend for 10 consecutive years. Considering all these factors, I am bullish on goeasy.

Docebo

Another growth stock I am bullish on is Docebo (TSX:DCBO), which offers customers a highly customizable enterprise learning platform. The expanding customer base and growing average customer value have driven its top line. Over the last four years, the company’s revenue has grown at an annualized rate of 44.5%. Its customer base expanded from 1,725 to 3,759 during the period, while its average customer value doubled to $52,000. Amid the top-line growth, the company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has expanded from a loss of $2.2 million in 2019 to a profit of $16.3 million in 2023.

Meanwhile, the demand for LMSs (learning management systems) could rise amid digitization and growing remote working and learning. LMSs offer higher convenience and are cost-effective, thus making them popular. Meanwhile, Docebo is leveraging artificial intelligence to develop innovative products to improve user experience and expand its customer base.

Further, the company’s clients have signed multi-year agreements and earned substantial revenue from recurring revenue sources, stabilizing its financials. Given its healthy growth prospects, I am bullish on Docebo despite its expensive valuation.

Savaria

Savaria (TSX:SIS) offers a wide range of accessibility solutions to physically challenged and older people to improve mobility. The company reported an excellent 2023 performance last month, with its revenue growing by 6.1%. Solid organic growth and favourable currency translation drove its top line, while divestment of its Norway operations offset some of the growth. Amid the top-line growth and expansion of its EBITDA margins, its EBITDA has increased by 8.2%.

Meanwhile, the demand for accessibility solutions could grow amid an aging population and increasing government investments in healthcare infrastructure. Last year, the company also adopted the Savaria One program, focusing on unlocking its full potential. Supported by the program and growing addressable market, the company’s management projects its revenue to reach $1 billion in 2025 while its adjusted EBITDA margin could cross 20%. The company offers a forward dividend yield of 3.0% and trades at an attractive next-12-month price-to-sales multiple of 1.4, making it an ideal buy.

The post 3 Stocks That Could Beat the Market as Interest Rates Fall appeared first on The Motley Fool Canada.

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Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Docebo. The Motley Fool has a disclosure policy.

2024