The Bank of Canada held its key overnight rate steady at 5% this month for the fourth consecutive time. Investors want the central bank to soon ease its restrictive monetary policy to create a tailwind for stocks.
However, even without having cut rates yet, Headwater Exploration (TSX: HWX) and Black Diamond Group (TSX: BDI) are buying opportunities. Both stocks are set for explosive growth in five years and offer a chance to double your money.
Meteoric price growth
Historical data shows that Headwater investors more than doubled their money in five years. As of this writing, the energy stock trades at $6.46 per share (+3.36 year to date), 797% higher than $0.72 five years ago. Current investors also partake in the lucrative 6.3% dividend.
The $1.5 billion oil and gas exploration and development company operates in Marten Hills, Alberta and McCully Field, New Brunswick. Headwater produces petroleum and natural gas in these core operating areas. Marten Hills boasts high-quality oil production, reserves, and lands, while McCully Field has low-decline natural gas production and reserves.
Headwater’s net income has risen steadily, if not exponentially, in the last three years. From $6.7 million in 2020, it jumped 583% to $45.8 million in 2021. Then, in 2022, net income soared 243% year over year to $162.1 million. In its latest quarterly report (three months ending September 30, 2023), sales and net income increased 52% and 57% respectively to $144 million and $49.7 million versus Q3 2022.
Besides the impressive top- and bottom-line numbers, Headwater achieved record production (18,027 barrels of oil equivalent per day average) and adjusted funds flow from operations ($80.9 million).
Headwater implements a multi-year business strategy whereby it grows base production while maintaining positive adjusted working capital. For 2024, the company projects average daily production to increase 11% from 2023 to 20,000 boe/d.
Management is also committed to growing the quarterly dividend since the inaugural payment in November 2022. This year’s dividend outlook is a 1% increase to $95 million. Market analysts’ 112-month average price target is $9.18 (+42%).
Incredible bull run
Black Diamond had an incredible run in 2023 amid massive headwinds and rewarded investors with a 71% overall return. At $8.91 per share, the overall return in five years is 367.7% (36.1% CAGR). The industrial stock ranked 30th in the 2023 TSX30 List, the flagship program for Canada’s top growth stocks.
The $535.6 million company operates in the rental and leasing services industry, renting and selling modular space and workforce accommodation solutions. Two core business segments, Modular Space Solutions and Work Solutions, contribute significantly to revenue.
The stock’s performance mirror’s Black Diamond’s strong financial and operating results. In the first three quarters of 2023, total revenue and profit rose 23% and 32% year over year respectively to $290.1 million and $22.5 million. Its free cash flow increased 17% to $60.8 million versus the same period in 2022.
Market analysts recommend a strong buy rating for Black Diamond and see a 35% upside potential. The return should be higher if you factor in the 1.34% dividend.
Top performers’ price
Headwater Exploration and Black Diamond Group have produced hefty gains in the high-interest rate environment. Consider taking positions now before the share prices rise further once rate cuts begin.
