Investing in growth stocks can be a thrilling journey, but finding the right balance between risk and reward is crucial. One effective strategy is to focus on safe sectors that are showing signs of recovery. These sectors, including utilities, consumer staples, and healthcare, are known for their stability during economic downturns. When these sectors begin to rebound, growth stocks within them often benefit from renewed investor confidence. This combination of stability and potential upside makes them a promising avenue for those looking to achieve momentum in growth stocks.
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The Benefits of Investing in Recovering Safe Sectors
Safe sectors typically exhibit resilience during economic downturns, making them a solid foundation for investment. As these sectors recover, they offer an opportunity to tap into consistent returns while still benefiting from growth potential. By concentrating on companies within these recovering sectors, investors can align their portfolios with market improvements and secure long-term gains.
North American Construction Group (TSX): A Prime Example
North American Construction Group (TSX) is a compelling example of a growth stock benefiting from its position in a recovering sector. Recently, NOA has demonstrated significant positive momentum on the TSX, driven by strong operational highlights. A major factor contributing to its success is the acquisition of the MacKellar Group in Australia. This strategic move has led to record-breaking quarterly revenue of $403.4 million, a substantial increase from $233.4 million a year earlier.
NOA’s geographical expansion into Australia, coupled with robust equipment utilization, has bolstered its standing as a leading contractor in key mining markets. The company’s diversified operations and strategic partnerships provide a solid foundation for future growth. Additionally, NOA reported record adjusted EBITDA of $101.1 million, with margins of 25.1%, showing significant improvement from the previous year’s $85.9 million EBITDA.
Despite some challenges, such as project losses at Nuna Group, NOA’s solid financial footing and long-term contracts, including a recent five-year, $375 million agreement in Queensland, Australia, make it an attractive investment. With a robust contractual backlog exceeding $3 billion and a dividend yield of 1.6%, NOA offers a compelling mix of growth and stability.
Dexterra Group (TSX): Gaining Momentum in Infrastructure Management
Dexterra Group (TSX) is another notable example of a growth stock making strides in a recovering sector. The infrastructure management company has demonstrated impressive financial performance and strategic moves. In 2023, Dexterra achieved record revenues of $1.1 billion, marking a 15% increase year-over-year. This growth was driven by strong performance in its Integrated Facilities Management (IFM) and Workforce Accommodations, Forestry, and Energy Services (WAFES) divisions.
The company’s Q2 2024 revenue growth of 18.1% year-over-year, reaching $253.6 million, reflects its success in capitalizing on high activity in natural resource markets and the recent acquisition of CMI Management in the U.S. This acquisition expanded Dexterra’s IFM presence, further fueling its growth.
Dexterra’s strong free cash flow (FCF) is a key driver of its value. In 2024, the company generated $10.1 million in FCF year-to-date, with Adjusted EBITDA consistently converting to about 50% in FCF. This robust cash flow allows Dexterra to return value to shareholders, including through dividends. The company declared a Q3 2024 dividend of $0.0875 per share, maintaining a healthy yield of 5.5% at writing.
Furthermore, Dexterra’s strategic decision to divest its Modular business for $40 million will enable the company to concentrate on its core strengths, enhancing profitability as it 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 presents a valuable investment opportunity for those seeking stability and dividends.
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Investing in growth stocks within safe sectors experiencing recovery can offer a strategic advantage. Sectors like utilities, consumer staples, and healthcare provide a stable foundation, while companies like North American Construction Group and Dexterra Group exemplify how these sectors can drive significant growth. By focusing on companies showing signs of recovery and leveraging their stability, investors can position themselves for consistent returns and long-term gains.