Five stocks with room to grow, soar or chug along

By Sean Silcoff
Globeinvestor Magazine Online, Aug. 26, 2008

The past 12 months have been troubling for Canadian investors: They have watched a lot of profits in their portfolios evaporate, first with the credit crunch and then the end of the commodity boom. But what about the stocks that have not only survived but thrived since August, 2007? Here are five top-performing stocks on the benchmark S&P/TSX 60 index that still have room to move.

The past 12 months have been troubling for Canadian investors: they have watched a lot of profits in their portfolios evaporate, first with the credit crunch and then the end of the commodity boom.

But what about the stocks that have not only survived but thrived since August, 2007? Here are five top-performing stocks on the benchmark S&P/TSX 60 index that still have room to move.

Agrium Inc. (AGU)
Business: fertilizers
Year-to-date stock return: 24 per cent
Prospects: Growth from the ground up

Best known as Canada’s “other” fertilizer company (behind Potash Corp. of Saskatchewan Inc.), Agrium is also a successful acquirer and integrated agricultural firm, with a network of 500 retail stores. It also produces technologically advanced, environmentally friendly slow-release fertilizer products. And with such bulls as Bank of Montreal’s global portfolio strategist Don Coxe expecting fertilizer and crop prices to remain high, it looks to reap even higher profits this year and next.

TD Newcrest analyst Paul D’Amico figures the company will earn $9.13 per share in 2009, up from $3.25 last year and 24 cents in 2006. The stock has come off a bit in the past two months but should almost double in the next year to $150 per share, Mr. D’Amico says.

Bombardier Inc. (BBD.B)
Business: trains and planes
Year-to-date stock return: 25 per cent
Prospects: Cruising speed

When will the global boom in luxury private jets end? The answer, for Bombardier, the world’s leading manufacturer, is somewhere over the horizon. It has a close to four-year backlog on its high-end Global jet family, a 27-month wait for its Challengers and 16 months for Learjets. Deliveries will be up this year and at least stable next year; factor in higher selling prices and “they’re in pretty good shape,” says Versant Partners analyst Cameron Doerksen.

Demand for its commercial airliners is holding up despite higher fuel prices, while its commuter railcar business is benefiting from the higher fuel prices, with ridership rising. Share profit should rise to 51 cents (U.S.) this fiscal year and 60 cents the year after, from 16 cents last year, says Mr. Doerksen. He has a $9 (Canadian) target on the stock.

Canadian Natural Resources Ltd. (CNQ)
Business: Oil and gas
Year-to-date stock return: 18 per cent
Prospects: Barrelling ahead

With record oil prices, it’s no surprise that three of the top 10 performing stocks on the S&P/TSX benchmark index over the past year are oil and gas companies. Which one is the best bet going forward?

Randy Ollenberger of BMO Nesbitt Burns Inc. makes a good case for Canadian Natural Resources. Its Horizon oil sands mega-project is due to start up in the next few months, bringing 110,000 barrels a day of production on steam, and has attracted the attention of Warren Buffett and Bill Gates.

“But that’s not the end of the story,” Mr. Ollenberger says. In fact, the company is adding another 70,000 barrels a day in West Africa and at its heavy-oil business in northeastern Alberta. Despite the market’s focus on the oil sands, those other ventures “will drive a lot of growth,” he says.

By the end of 2008, CNQ will be producing 560,000 barrels of oil equivalents per day. Based on projects now on the go, that should rise to about 900,000 by the end of 2012 – all “from assets they already own,” he notes. His one-year stock target is $115, with earnings estimated to grow to $7.08 per share this year and almost $12 in 2009, from $4.84 last year.

Canadian National Railway Co. (CNR)
Business: railway
Year-to-date stock return: 13 per cent
Prospects: Chugging along

CN is an economically sensitive stock, but the railway is also the long-time, low-cost leader in North America. “Where that really becomes noticeable is when things soften for everyone,” says Canaccord Adams Inc. analyst Tom Varesh. “If you’re a railroad that has put these cuts in place, you’re ahead of the other guys.”

CN has also prospered with its new intermodal hub where shipping containers are loaded onto its trains in Prince Rupert, B.C. Its intermodal business has increased by 6.7 per cent year-over-year, compared to 0.8 per cent growth for Canadian Pacific Railway Ltd. and declining figures for the U.S. railways.

Meanwhile, Mr. Varesh figures the Canadian economy should hold up better than that of the U.S., while the stronger Canadian dollar should translate into sturdier retail sales. That bodes well for the intermodal business, which largely receives consumer products shipped from abroad.

“I still look at CN as a stable, defensive stock in these times” that pays a dividend and is an important cog in the economy, Mr. Varesh says. Furthermore, sharply lower emissions from trains compared to trucks means stricter environmental standards may benefit CN. Mr. Varesh figures earnings will rise from $3.40 per share to $4.25 in 2009. He has a buy rating and $63.75 target on the stock.

Research In Motion Ltd. (RIM)
Business: handheld wireless devices
Year-to-date stock return: 20 per cent
Prospects: Boldly venturing ahead

The market for smart phones to compete with RIM’s BlackBerry continues to intensify, but the Waterloo, Ont., tech giant shows no signs of giving up its lock on the corporate and government market for its must-have portable e-mail devices. In fact, RIM is not only bolstering its lead in that lucrative market, but expanding its offering with what Canaccord Adams analyst Peter Misek calls “a series of game-changing devices for RIM this year,” starting with the launch of the Bold. The device, he says in a note, “offers several incremental benefits” to both corporate users and consumers, including greater speed and Web browsing, a camera phone and larger keys.

He foresees revenue doubling this year to $6-billion from last year and more than tripling in the next two years, with earnings rising almost sevenfold from last year’s $1.10 per share by then. He has a $225 (U.S.) per share target on the stock. Raymond James’ Steven Li has a much lower target – $140 per share – and more caution about the stock, noting it already trades at a premium to Apple Inc. (at 18.7 times forecast 2009 operating earnings to Apple’s 16.8), while its success in the consumer market is less certain, given its “killer app in the enterprise market is not as mission-critical in the consumer market,” where it lags its rivals in offering music, video and games on its devices. That said, Mr. Li expects “news flow to remain positive,” with three product launches and “a solid … shipment guidance” from the company next month.

Special to The Globe and Mail