The Top Small-Cap Canadian Stocks to Buy in January 2023

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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.

In fact, 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 start to 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. In fact, many investors will refer to stocks as small caps, when they really aren’t.

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

Another common misconception is that small-cap stocks have to trade on smaller exchanges like the TSX Venture Exchange. In reality, many small-cap Canadian stocks, including every single one we talk about below, trade on Canada’s major index, the Toronto Stock Exchange. There are also plenty of small cap stocks trading down south on the New York Stock Exchange.

If you’re new and just learning how to buy stocks, the secret to crushing the overall stock market using small-cap stocks is to identify the kinds of companies that have major potential that many other investors haven’t identified yet.

Small-time investors like you and me can easily build up a major 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 quite 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

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

The product that really sent Goeasy to the stratosphere is its unsecured loan that comes with a whopping 45%+ interest rate. This might seem a little excessive to you or me, but for folks who previously got payday loans at a rate of 400%+ annually, they seem like a bargain in comparison.

The company has grown its top line from just $67M in 2001 to more than $825M to close out 2021.

The bottom line grew even faster, increasing from $0.11 per share to over $10.40 per share during the same time. This might be why Goeasy has returned a whopping 8,300% to its shareholders since 2001.

Analysts expect the torrid growth rate to continue, too, with earnings projected to surpass $12 per share in 2022. 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 also offers loans secured by real property and things like 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 its loans, including things like 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 10.5 times trailing earnings at the time of writing but has historically traded in the 12.2-12.5 range. It is very likely the market is 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 around the world.

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

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

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

It does this by constantly redesigning tickets and by making retail displays more enticing. It’s working, which is 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 major headwinds in terms of material costs. The company set a record in 2021 in terms of the top line, but earnings got smashed, coming in 59% lower than Fiscal 2020.

As prospective investors, however, we’re not really concerned with what has happened in the past. Did the market get way too optimistic with Pollard? Absolutely. But, we’re more so 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 the fact it has very limited sources for the 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. Long term, however, if you’re patient, I think Pollard will get back to previous levels of growth.

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 with 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 the bulk of its locations and revenue is generated south of the border. In fact, it has started reporting earnings in USD for 2022 and beyond.

Death is a pretty interesting growth business. North America’s aging population means the number of 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, folks who aren’t getting any younger.

Park Lawn is also a growth-by-acquisition machine, gobbling up funeral homes as fast as it possibly can. If you’ve ever dug through a quarterly report by the company, it is often making 5 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 in 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, one that yields in the high 1% range.

Automotive Properties REIT (TSE: APR.UN)

Best Small Caps Stocks Canada - Automotive Properties REIT

Speaking of industries that are consolidating, Canada’s car dealership sector will experience a major 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, there are over 2,000 car dealerships in Canada, while the largest dealership operator owns less than 100 locations. The best way to play this trend isn’t to own the dealerships themselves, which are volatile businesses that are highly sensitive to the overall economy.

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

Automotive Properties has posted some pretty impressive growth since its 2015 IPO, more than doubling the size of its portfolio to over 70 different properties, spanning more than 2.5M square feet of gross leasable space.

It has also successfully diversified away from Dilawri, its main tenant, which was responsible for 100% of its rent when the company first appeared on the TSX. Many of the larger dealership operators are tapping Automotive Properties to buy some of their underlying real estate, cash that is then used to buy 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 mid 6% range.

Keep in mind, 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.


Canadian Small Cap Stocks - A and W

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 that are willing to pay a little more for quality. The strategy has worked. AW has turned a $10,000 initial investment into something just shy of $26,200 over a ten-year period, dividends included.

A&W also has a history of using innovative promotions to drive the top line. Think of things like its Beyond Meat burger, its grass-fed beef, or its hormone-free chicken. Even if you don’t agree with the strategies utilized by A&W, it’s hard to deny the fact 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 very unfortunate that just when this company hit Dividend Aristocrat status, the pandemic hit and caused it to slash its distribution.

However, make no mistake about it, A&W quickly made up for lost distributions and then some. Shortly after the pandemic, it not only issued special distributions but consecutive raises to get back to its pre-pandemic distribution. It is highly likely A&W will return to Aristocrat status in half a decade.

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

AcuityAds Holdings (TSE:AT)

Acuity Ads Small Cap Stock

Let’s start this out by prefacing one thing. The run-up in AcuityAd’s pricing in January 2021 was, much like a lot of small-cap stocks, an anomaly. It is highly unlikely those price points get touched again in the near future, and I think we need to separate ourselves from the fact this Canadian small cap got that high at one point, to avoid any unrealistic expectations.

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

Its solutions include Illumin, which is 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 gamechanger, and 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 if it can, advertisers will flock to the platform.

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 finally expected to return to 20-25% growth in Fiscal 2022. Analysts are reiterating this growth, as most have 20%~ top and bottom-line growth factored into their Fiscal 2022 estimates.

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, one that it should be able to utilize to buy back shares at a discount or acquisitions.


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