On Monday, Canaccord Genuity released its top 24 stock picks for 2018. Listed below are the analysts' selections arranged by sector.
Within the energy sector, the research team is highlighting seven stocks. For most of these recommendations, analysts have identified potential catalysts that may lift stock prices higher.
CES Energy Solutions Corp. (CEU-T): Analyst John Bereznicki has a price target of $8.50, suggesting investors may realize a potential return of over 30 per cent over the next year. He anticipates the company will generate solid free-cash-flow growth with the majority of its cash flow generated from the U.S. noting, "Management remains constructive about the company's prospects in the Permian, and believes recent technical challenges faced by producers could create an opportunity to grow market share for its customized drilling chemistry."
Gran Tierra Energy Inc. (GTE-T): Analyst Jenny Xenos anticipates the share price could rally 18 per cent to her price target of $4.20 on the back of potentially strong exploration results announced in the near term. She notes that the company has an "active exploration drilling campaign, with up to eight wells planned in the next few months, tapping into the company's vast resource." In terms of a timeline, "Test results of the Siriri well, targeting multi-zone potential including the 'A' Limestone, are to be reported next. Ayombero well results will likely follow." She views the stock as a current buying opportunity stating, "The stock trades at a discount to its Colombian peers, at 4.8 times 2018 expected enterprise value-to-debt adjusted cash flow (peer average is 5.7 times). We recommend buying GTE ahead of the upcoming potential catalysts, which could have a meaningful impact on the stock."
InPlay Oil Corp. (IPO-T): Analyst Sam Roach has high expectations for this micro-cap stock with a market capitalization of $126-million. He has a 12-month price target of $2.50, suggesting the share price may rally 37 per cent over the next year. His bullish outlook is predicated on production growth. He remarks, "InPlay generated over 20 per cent production growth in its first full calendar year as a public company. Almost all of that growth was organic…We expect growth rates to be similar in 2018 because well results have been improving, and higher oil prices should contribute to increased drilling activity…We expect management to provide insight into new Cardium wells and growth potential with 2018 guidance in January." Production guidance expected to be released by management later this month could be a potential catalyst for the stock according to Mr. Roach.
Suncor Energy Inc. (SU-T): Analyst Dennis Fong believes Suncor is on target to deliver a potential price return of 15 per cent with his price target set at $54. In combination with its 2.7 per cent dividend yield, this represents a potential total return of nearly 18 per cent. He sums his investment recommendation up as follows, "We have a buy rating on the stock and estimate the company will show the highest organic production growth among the integrateds over the next five years, while providing a significant free cash flow profile, complemented by a history of returning value to shareholders while remaining defensive with its integrated business structure."
Vermilion Energy Inc. (VET-T): Analyst Dennis Fong is recommending Vermilion as his top mid-cap pick. In addition, the company has a strong balance sheet allowing the company to pay its shareholders an attractive dividend yield of 5.5 per cent. Mr. Fong remarks, "2018E production growth stems primarily from the Netherlands and Germany, driving debt-adjusted per-share production growth of approximately 11 per cent, above the mid-cap average of approximately 5 per cent. Vermilion's portfolio of assets provides flexibility in capital allocation, exhibits lower decline rates, and receives global pricing - which has historically reflected a premium compared to North American benchmarks. The higher netbacks drive the robust free cash flow profile, improve balance sheet strength, allow for opportunistic acceleration of growth, and could fund dividend increases." Furthermore, he points out that the company may benefit from the cold weather, lifting natural gas prices. He has a price target of $52, implying 11 per cent upside.
Torc Oil & Gas Ltd. (TOG-T): Analysts Anthony Petrucci and Michael McQuilkin are forecasting 22 per cent upside with a price target of $9.25. They recommend investors increase their exposure to the energy sector highlighting that, "In 2017, the average oil-weighted midcap stock in Canada was down approximately 25 per cent to 30 per cent, while the commodity was up roughly15 per cent (both the spot and 12-month futures price). This is also reflected in trading multiples, with the current 12-month forward cash flow multiple at approximately 5.0 times versus the historic level of approximately 7.0 times. We believe this is providing an opportunity for clients to capitalize on the disconnect by investing in high-quality light oil companies in Canada." The analysts believe shares of TORC are undervalued and a buying opportunity expecting the company will deliver approximately 12 per cent production growth in 2018. In addition, the company offers investors a dividend yield of over 3 per cent.
Keyera Corp. (KEY-T): Analyst David Galison has a price target of $46. "We believe the share price in the new year should benefit from growing volumes from new assets entering service as well as increased drilling activity." He believe the valuation discount relative to is peers should narrow given the company's "continued earnings growth from its capital program, improving commodity prices, and improving volumes. Recall, the shares have historically traded in line with or at a premium to peers." Keyera offers investors a payout ratio north of 4 per cent with a conservative payout ratio.
Chesswood Group Ltd. (CHW-T): The stock price was pummelled in 2017, falling to $11 from over $14 in early 2017. However, analyst Taylor Arnold anticipates the share price will rebound to the $14 level, rallying nearly 30 per cent to his price target of $14.50. He remarks," The company generates approximately 80 per cent of its consolidated income from the U.S. and is expected to benefit from the tax reform that takes effect in 2018. A lower U.S. corporate tax rate of 21 per cent (from 35 per cent) will likely drive meaningful upside to our earnings per share estimates, and stronger economic activity throughout the U.S. could accelerate receivables growth." The company offers investors a high dividend yield, which he believes is sustainable: "Free cash flow generation supports the dividend, which currently represents a 2018 expected free cash flow payout ratio of 62.2 per cent and a yield of 7.3 per cent."
Fiera Capital Corp. (FSZ-T): Analyst Scott Chan is recommending Fiera Capital and has a price target of $16.50. The stock offers investors a yield of over 5 per cent. He is forecasting a resumption in earnings growth in 2018, expecting earnings per share (EPS) to come in at $1.10 in 2017, down from $1.17 reported in 2016, EPS of $1.22 in 2018 and EPS of $1.38 in 2019.
Toronto-Dominion Bank (TD-T): Within the Canadian banks, analyst Scott Chan believes shares are TD are headed to $80. "We favor TD shares mainly due to (1) U.S. retail platform differentiator with US earnings generating approximately 1/3 of net income; (2) margin upside from narrowing excess deposit, product mix and interest rate hikes; (3) efficiency gains due to scale and strongest top-line growth among peers; (4) above-peer-average EPS and dividend growth over the next two years; and (5) attractive relative valuation."
HEALTH CARE SECTOR
Theratechnologies Inc. (TH-T): Analyst Neil Maruoka has a price target of $9.50. The main event for this stock is potential FDA approval of ibalizumab, a drug used in treating people infected with HIV. Mr. Maruoka writes, "Although Theratechnologies finished 162 per cent higher on the year in 2017, the stock stumbled in November when the company announced a modest three-month delay for the potential FDA approval of ibalizumab. While the news was disappointing, pushing out timelines for the potential US drug launch, we believe the reason for the delay was not serious and should ultimately have no impact on the likelihood of FDA approval." He adds, "We see a good shot at FDA approval…[and] project a US commercial launch in the second quarter of next year."
iAnthus Capital Holdings Inc. (IAN-CN): With a price target of $3.90, analyst Matt Bottomley is recommending iAnthus, a company that provides financing and operating expertise to marijuana producers with operations in six U.S. states. He contends, "We continue to hold the view that 2018 will be a banner year for the company as its crown jewel assets in Massachusetts and New York are expected to make meaningful contributions by the back half of the year." He notes key drivers such as a "recreational market in Massachusetts that is expected to commence by mid-2018,its plans to enter the growing New York medical cannabis market via Citiva, and potential optionality in Florida, we believe iAnthus is laying a strong foundation to gain a sizable east coast presence heading into 2018."
Air Canada (AC-T): Analyst Doug Taylor anticipates the share price will continue to soar in 2018 and has a price target of $33. He argues, "We think this year should provide the foundation for another year of outperformance as the company continues to gear down its capex spending and free cash flow/leverage improves." Industry data remains supportive with growing traffic and higher load factors.
SNC-Lavalin Group Inc. (SNC-T): Analyst Yuri Lynk has a price target of $77. He is calling for earnings per share to jump to $3 in 2018 from $2.10 in 2017. "The primary driver of this growth should be a full year's contribution of the accretive Atkins acquisition, including an incremental $90 million, or 40 cents, of associated cost synergies." He also favours the company given its strong balance sheet, low valuation, and potential catalysts that could boost the share price. "On the new awards front, the company is shortlisted on several mega projects set for award. The largest of these by far is the $6 billion Réseau électrique métropolitain (REM) light-rail project in Montreal. SNC is a part of one of the two consortia that are shortlisted, with a winning bidder expected to be announced in Q1/2018. We are tracking several other transit projects that are in excess of $1 billion that could also meaningfully add to backlog. Separately, there are large booking opportunities in Power (various nuclear opportunities) and Mining & Metallurgy (the Clean TeQ Sunrise nickel/cobalt project, among others)."
Analysts have great expectations for several stocks in this sector, anticipating significant one-year returns.
B2Gold Corp. (BTO-T): Analyst Rahul Paul expects 2018 will be a "transformational" year for the company. He has a price target of $6, implying approximately 60 per cent upside potential. "With the flagship Fekola mine now in production and ramping up much better than expected, we believe 2018 could be B2Gold's best year since inception. Among the producers, we believe B2Gold represents one of the best combinations of growth, operational momentum, gold price leverage and exploration upside, which should all combine to drive significant outperformance over the next 12-18 months." He adds, "Fekola remains the key driver of a sector-leading 55 per cent production growth in 2018 (vs 2017), but more importantly (based on our forecasts), it should double gross margins and generate more than double the free cash flow generated at all of B2Gold's other operations combined."
Kinross Gold Corp. (K-T): Tony Lesiak has a $9.25 price target. Amongst the reasons for his 'buy' recommendation on the stock include: 1) valuation. The stock is trading at a discount relative to its peers; 2) its leverage to the price of gold, with a "25 per cent increase in Net Asset Value for a 10 per cent increase in [the] gold price."'; and 3) "steady to modest positive production growth into 2024."
Osisko Mining Inc. (OSK-T): Analysts Kevin MacKenzie and Tony Lesiak have a price target of $7, anticipating the share price will more than double in value. Potential catalysts include an updated resource estimate expected to be released this quarter for its 100-per-cent-owned Windfall Lake project located in Quebec. In addition, a feasibility study is anticipated to be released in the second half of the year.
Premier Gold Mines Ltd. (PG-T): Analyst Eric Zaunscherb has a price target of $5. He suggests there are several potential drivers to lift the share price higher over the course of the year stating, "These include: 2018 plans with budgets expected early in the first quarter 2018 (particularly South Arturo development plans), company reserve and resource estimates expected to be updated [the middle of the first quarter] of 2018, McCoy-Cove preliminary economic assessment expected late first quarter, ongoing exploration results, and Greenstone permitting by the end of 2018."
Turquoise Hill Resources Ltd. (TRQ-T): Analyst Dalton Baretto has identified this copper-gold play as his top pick with a $7 price target. "We flag TRQ as our top pick for 2018, given its 66 per cent ownership of possibly the best copper asset in the world - Oyu Tolgoi. We remind investors that Rio Tinto plc currently owns 51 per cent of TRQ, and is the operator of Oyu Tolgoi. RIO has recently completed a holistic review of the $5 billion Hugo North Lift 1 project, where the bulk of the asset value lies. We believe the results could be published imminently, and that one potential scenario could be a forecast increase in production rates with little or no capex increase. This could prove to be a major positive catalyst for TRQ in 2018."
First Capital Realty Inc. (FCR-T): Analyst Mark Rothschild says the company holds "a best-in-class portfolio of grocery- anchored shopping centres predominately located in major Canadian cities". He maintains that the company can generate consistent growth, "We believe FCR can continue to generate consistent rental rate growth from its well-located and defensive portfolio, leading to steady increases in same-property NOI (net operating income)." FCR offers investors a yield of 4 per cent and Mr. Rothschild has a price target of $25.
InterRent REIT (IIP.UN-T): Analyst Jenny Ma has a price target of $10.50. She notes, "Strong fundamentals should drive robust internal growth. Rental apartment fundamentals are exceptionally strong in InterRent's core markets, which in combination with management's capabilities in redevelopment and optimizing the operating performance of acquired properties, have enabled the REIT to consistently post sector leading internal growth. Through strong execution, the REIT has delivered, on average, 6.5 per cent same-property NOI [net operating income] growth annually over the past five years. Going forward, we expect the REIT to continue to post robust internal growth, and we forecast AFFO (adjusted funds from operations) per unit to grow by 13 per cent over the next two years. The REIT pays its unitholders 27 cents per unit, equating to an annualized yield of 3 per cent." Ms. Ma believes that there is room for future distribution increases given its conservative payout ratio.
CONSUMER DISCRETIONARY SECTOR
BRP Inc. (DOO-T): Analyst Derek Dley has a "buy" recommendation and $56 price target on BRP, suggesting the share price may climb approximately 18 per cent over the next 12 months. He believes the share price's positive momentum in 2017 will continue into 2018 driven by new product introductions that have higher margins. He is calling for earnings per share to increase 19 per cent to $2.34 in 2018 from $1.96 in 2017, with earnings forecast to rise 17 per cent to $2.73 in 2019. Mr. Dley believes the company's solid growth profile justifies the stock trading at a higher multiple, closer to its main competitor, Polaris Industries Inc. BRP is currently trading at an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of approximately 9 times his 2019 estimate, a two-point discount to Polaris, which is trading at an EV/EBITDA multiple of roughly 11 times.
Entertainment One (ETO-LSE): Analyst Aravinda Galappatthige is bullish on this stock trading on the London Stock Exchange. He is anticipating EBITIDA growth to decelerate to 9 per cent in fiscal 2018, but indicates that he sees "a clear path to mid- to high-teen growth rates for the TV division over the medium term."
INFORMATION TECHNOLOGY SECTOR
Real Matters Inc. (REAL-T): Real Matters is a technology company that serves the mortgage lending and insurance industries. Analyst Robert Young has a $16 price target on this stock. His investment recommendation for the stock is based on his belief that, "We expect continued strong execution to drive the stock higher in 2018 given our view of a stronger U.S. purchase origination market in the U.S. and opportunities to drive significant share growth from recent Tier-1 wins."