Although COVID-19 has been a vicious headwind for many stocks, it has emerged as a strong tailwind for others.
U.S. companies such as Teladoc Health Inc. (TDOC-N), Zoom Video Communications Inc. (ZM-Q), Amazon.com Inc. (AMZN-Q) and Gilead Sciences Inc. (GILD-Q) have certainly been among the higher-profile names to play the coronavirus trade.
But there are also Canadian companies flying under the radar that may benefit from changing consumer and corporate behaviour due to COVID-19 or could have a possible treatment for patients suffering from the coronavirus.
We asked three portfolio managers for their top small-cap picks that have potential to ride the coronavirus tailwind.
Bruce Campbell, president and portfolio manager, StoneCastle Investment Management Inc.
His fund: Purpose Canadian Equity Growth Fund
The pick: Well Health Technologies Corp. (WELL-T)
52-week range: 0.66 cents to $3.75 a share
Well Health’s shares have become more attractive now that its new telemedicine business has gained traction as Canadians embrace digital health care during the pandemic, says Mr. Campbell. The Vancouver-based firm, which is an electronic medical-record service provider and owns health care clinics, launched its VirtualClinic+ telehealth service in March. Well Health has a solid balance sheet after a recent financing and a strong management team led by founder Hamed Shahbazi, who ran TIO Networks Corp. before selling it to PayPal Holdings Inc. in 2017. Hong Kong billionaire Li Ka-shing’s 17-per-cent stake in Well Health is also a “nice vote of confidence,” he says. Given Mr. Shahbazi’s history, his latest startup is also a potential future takeover target. A risk is whether Well Health can execute its stated acquisition strategy successfully.
52-week range: 0.245 cents to 0.95 cents a share
CloudMD is poised to benefit from the telemedicine trend as many in-person health-care visits have been suspended because of COVID-19 and virtual health care can now be billed under provincial medical plans, says Mr. Campbell. The Vancouver-based company, which owns an electronic medical-records provider and some medical clinics, recently launched its CloudMD app in British Columbia and Ontario. The company, headed by chief executive officer Dr. Essam Hamza, also started to partner with pharmacies recently to put telemedicine kiosks in private rooms, where customers can talk to doctors about non-emergency concerns, such as prescription refills. CloudMD recently did a financing so it has cash on the balance sheet. A risk for the company, which is also a potential takeover target, is increasing competition in the space, Mr. Campbell says.
Stephen Takacsy, president, chief executive officer, chief investment officer and lead portfolio manager, Lester Asset Management Inc.
His fund: Lester Canadian Equity Fund
The pick: Goodfood Market Corp. (FOOD-T)
52-week range: $1.49 to $4.94 a share
Goodfood’s meal-kit delivery service has gained momentum during the pandemic as many shoppers avoid food stores, says Mr. Takacsy. The Montreal-based firm is the leader in Canada with 40 per cent of the market versus 35 per cent for Germany-based HelloFresh SE. Goodfood, whose stock climbed 33 per cent in March, should see its sales jump substantially from its run rate of $300-million at the end of February, he adds. The company, which also sells private-label foods to its subscribers, has seen sales grow 50 per cent annually, yet its stock only trades at 0.70 per cent times revenue, he notes. Goodfood is also a potential takeover target for a major grocer as meal-kits will remain a strong trend. Loblaw Cos. Ltd. (L-T) recently started a meal-kit service in Toronto, but he says this business model is best run independent from the food-retailing business.
52-week range: $2.22 to $10.30 a share
Mediagrif, whose e-commerce platforms have enjoyed strong growth during the pandemic, is an attractive turnaround play, says Mr. Takacsy. Luc Filiatreault, a veteran tech entrepreneur who took over as CEO of the Montreal-based company last fall, has embarked on a growth strategy after the company took writedowns on some struggling web-based businesses last year. Mediagrif’s biggest revenue drivers include an e-commerce platform for large firms, which includes clients such as Sobeys Inc. and Société des alcools du Québec for its online sales of cannabis, and another platform for bidding on government contracts, he says. “Roughly 80 per cent of its $80-million in sales is recurring revenue.” A risk is whether Mediagrif can successfully execute its acquisition strategy after raising money from a recent financing, he says.
Steven Palmer, president and CIO, AlphaNorth Asset Management
His fund: AlphaNorth Partners Fund
The pick: Analytixinsight Inc. (ALY-X)
52-week range: 0.21 to 0.58 cents a share
Analytixinsight’s financial-technology subsidiary, MarketWall, is poised to benefit from consumers embracing online financial transactions because of COVID-19, says Mr. Palmer. Toronto-based Analytixinsight, a software company and user of artificial intelligence, owns 49 per cent of Milan-based MarketWall, which focuses on developing mobile apps with financial data and stock trading. MarketWall is waiting for approvals to offer a discount-brokerage service in Italy and other European countries. Italian bank Intesa Sanpaolo S.p.A., which has a 33-per-cent stake in MarketWall, saw increased usage of its financial app in the first quarter, he notes. A risk with MarketWall is that it will need to raise cash through financings and that could be dilutive. Another Analytixinsight business is CapitalCube.com, which provides financial analysis on stocks.
The pick: Algernon Pharmaceuticals Inc. (AGN-CN)
52-week range: 0.04 cents to 0.58 cents a share
A potential catalyst for Algernon Pharmaceuticals’ shares stems from clinical trials to see if Ifenprodil – a drug approved in Japan and South Korea for dizziness and vertigo – can help patients suffering from COVID-19, says Mr. Palmer. “The drug could potentially reduce lung damage.” The Vancouver-based drug-repurposing company has Health Canada approval to do a phase 2b/3 clinical trial starting as early as June and is seeking similar approvals in the U.S.and Australia, he says. “The drug is known to be safe. We will know by this year whether it works.” If the trials fail or a vaccine is developed, Algernon could pursue the original use of Ifenprodil in the U.S. market or repurpose it to treat other infections, he adds. Algernon, which raised $10-million from a financing, is starting a trial in Australia to see if the drug can treat a chronic cough condition.