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Peter Hodson.
Peter Hodson.

BNN Market Call

Three top stock picks from 5i Research’s Peter Hodson Add to ...

Peter Hodson is head of research at 5i Research Inc. His focus is on Canadian small- and mid-cap stocks.

Top picks:

Magna International

Pure earnings momentum. Magna continues to exceed expectations, and is poised to benefit from global growth and continued good conditions in the auto sector. It is sitting on a a big net cash position, and is looking at acquisitions in China and Russia. Growth has been much higher than expected, yet shares trade at just 13 times earnings.

AutoCanada Inc.

Another record quarter and another dividend increase from AutoCanada last week. Earnings per share in the last quarter increased by 57 per cent, yet the stock is still only 15 times earnings. Its sales are much higher than the industry, and it continues to make dealership acquisitions to drive growth going forward. We started covering ACQ in the $6 range: It has performed exceptionally well in the past two years, yet continues to accelerate earnings. Its larger market cap, dividend growth and growth profile continue to attract new investors.

MacDonald Dettwiler & Associates

Earnings growth is expected to be exceptionally high over the next few years due to the Loral Space acquisition. Revenue almost tripled in the last quarter, and operating earnings increased 33 per cent. The backlog is high and earnings stability has improved. Considering its growth rate 15 times earnings is a very decent price.

Past Picks: April 4, 2013

Amaya Gaming
Then: $4.93
Now: $6.47
Total return: +31.24 per cent

Contrans Group
Then: $12.34
Now: $10.88
Total return: -9.80 per cent

FirstService Corp.
Then: $34.16
Now: $37.61
Total return: +10.46 per cent

Total return average: +10.63 per cent

Market outlook:

We continue to be of the belief that the Federal Reserve will “talk” about tapering to prepare investors for the inevitability of it, but is unlikely to actually do much about it in the medium term. Thus, status quo is expected, and it is good. We see improving profit margins, finally an increase in top-line revenue at most companies, strong balance sheets and waves and waves of dividend increases. In light of strong corporate balance sheets and an improving economic backdrop, market valuations are very reasonable. We think growth stocks – industrials and technology sectors in particular – could do very well indeed. Companies that raise dividends will continue to be favoured by investors. Small-cap growth stocks might be the 'go-to' sector. We remain cautious on golds, there is simply too much liquidity-driven selling.

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