Robert McWhirter is president of Selective Asset Management. His focus is on Canadian and technology stocks.
Top Picks:
Absolute Software (ABT TSX)
Absolute Software is a provider of firmware-embedded endpoint security and management for computers and mobile devices. It ranks in the top 4 per cent of my quant database. The new CEO, Geoff Haydon, is working to improve Absolute Software's branding and up-selling to existing customers. Absolute Software reported 10-per-cent sales growth on November 3 and a 2.7-per-cent free cash flow yield. Cash of $80-million is 23-per-cent of Absolute Software's market cap. Cash flow growth of 17 per cent and 19 per cent is forecast for the June 2015 and 2016 fiscal years. Absolute's shares appear attractive. They are trading at an Enterprise Value of 7.7 times 2016's cash flow estimate and an enterprise value to cash flow versus cash flow growth of 0.4 times.
Descartes Systems Group (DSG TSX)
Descartes Systems is a global logistics software company with high recurring revenue. Descartes' stock has been less than half as volatile as the market with a 5 year Beta of 0.4. It's low earnings variability is also attractive with a rank of A- . Free cash flow went up 13 per cent year over year to 3.6 per cent and cash is 12-per-cent of its market cap. Cash flow is forecast to grow 16 per cent to $0.74 Canadian per share for the January 2016 fiscal year. Descartes' stock ranks in the top 1-per-cent of my quant data base. Ron Meisels of Phases & Cycles has a technical target of $19 while GMP's Joe Farrell's technical target is $22 implying potential upside of 29 per cent.
ProMetic Life Sciences (PLI TSX)
ProMetic's stock hit a 52-week high today. ProMetic is a manufacturing company with the bonus of PBI-4050, an interesting drug discovery. ProMetic has proprietary filtering technology used for large scale purification of drugs and is using this technology to extract proteins from plasma at their plant in Laval, Quebec. Clinical studies of three proteins extracted from plasma: plasminogen, IVIG and AAT are expected over the next nine months. Roche spent $8.3-billion cash to acquire InterMune, a U.S. company with one approved drug, Pirfenidone used to treat idiopathic pulmonary fibrosis (IPF). Doug Cooper of Beacon Securities recently noted that ProMetic's PBI-4050 also targets IPF and has also shown promising results in kidney, heart and liver fibrosis. Doug notes, "In head-to-head studies published last fall, PBI-4050 showed better efficacy (worked better) than Pirfenidone." Alan Ridgeway of Paradigm Capital's target is $2.90. Doug Cooper's target is $3.50. ProMetic is our eighth largest personal holding. I expect to be buying more in the coming days.
Past Picks: October 9, 2013
Valeant Pharmaceuticals (VRX TSX)
Then: $111.17; Now: $145.66 +31.02%; Total return: +31.02%
Avigilon (AVO TSX)
Then: $18.62; Now: $17.36 -6.77%; Total return: -6.77%
CGI Group (GIB.A TSX)
Then: $36.38; Now: $40.39 +11.02%; Total return: +11.02%
Total return average: +11.76%
Market outlook:
The U.S. added 214,000 jobs in October – the ninth straight month of job gains over 200,000. This is the first nine-month period of significant job gains in nineteen years. The jobless rate improved as more people entered the workforce and more people found jobs. Job growth was broadly based across a wide number of industries and weekly hours worked rose to a six year high. North American stocks appear overbought in the short term but we believe new highs will continue over the next six months supported by the continued stimulation of the Japanese and European economies.