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Desjardins Securities’ Equity Research team revealed their 2022 outlook and top stock picks in a research note released Monday before the bell.

Expressing caution as the Omicron variant continues to spread, bringing volatility to global stock markets, the firm selected 30 equities possessing “the best growth prospects and/or the largest number of expected catalysts” for the next calendar year in 2022.

“While the end of 2021 has served to highlight the ongoing threat of COVID-19 with a surge in cases related to the Omicron variant, prompting new restrictions and the accelerated rollout of booster shots, the economy and markets have proven to be relatively buoyant,” the firm said. ”The TSX reached an all-time high in November, up ~25% on the year before retreating on the back of Omicron fears, with a year-to-date return of close to 19% as of mid-December, well above the long-term average of approximately 9 per cent.

“Following a massive recovery in commodity prices, energy led the way with a remarkable year in 2021 after a very tough 2020. Honourable mentions go to the financial and real estate sectors. While 2022 could be more muted in terms of performance given an expected rough start—with Omicron, capacity restrictions and ongoing labour and supply chain issues, less stimulus, expected interest rate hikes to combat inflation, and a tough comparison vs 2021 — we do expect that navigating toward a full recovery post-pandemic will provide another leg of growth.”

Here are Desjardins’ top investing ideas for 2022:

Consumer Staples/Discretionary

Alimentation Couche-Tard Inc. (ATD-T, “buy”) with a $56 target. The average target on the Street is $57.88.

Analyst Chris Li: “If Omicron is under control and morning daypart traffic improves, we believe there is upside to estimates with consensus organic EBITDA expectation (FY23) below ours and ATD’s guidance (US$4.9b vs US$5.1b). Better earnings visibility should be a catalyst. ATD’s strong free cash flow and balance sheet support value creation through share buybacks and M&A.”

Dollarama Inc. (DOL-T, “buy”) with a $72 target. Average: $64.54.

Mr. Li: “While we may be early with our upgrade (to Buy from Hold) given margin uncertainty from inflationary pressures, we believe they are manageable. Our recent pricing survey confirms DOL’s compelling value proposition. This provides flexibility for SKU refresh/mark-ups to offset cost pressures. Our upgrade reflects greater confidence in our 20-per-cent EPS growth expectation for next year (highest in our coverage). However, given DOL has rallied 10 per cent since 3Q results on December 8, partly driven by a shift to defence due to Omicron concerns in our view, it is possible that it could be range-bound or pull back in the near term. But over a 12-month period, we expect further price appreciation as concerns over inflationary pressures ease and the market gains greater confidence in mid-teens EPS growth in CY23.”

Diversified Industries

Ag Growth International Inc. (AFN-T, “buy”) with a $49 target. Average: $46.22.

Analyst David Newman: “We believe AFN is at an inflection point after a period of intensive investment in new geographies (Brazil, India, EMEA, Southeast Asia and the U.S.) and platforms (food, technology), with free cash flow poised to rise dramatically given lower growth capex needs and stable maintenance capex. It has transformed from being a North America–centric company focused on portable farm products, which was susceptible to regional conditions and had a low exposure to high-growth markets, to a diversified global company across the farm, commercial, food and technology platforms. As a result, AFN’s global platform is far more resilient and able to withstand volatility in any regional market (eg drought followed by flood in western Canada), more sophisticated in terms of supply chain management, and has an established and expanding presence in high-growth markets (Brazil, India, EMEA, the U.S.).”

H2O Innovation Inc. (HEO-X, “buy”) with a $3.50 target. Average: $3.59.

Analyst Frédéric Tremblay: “We expect a catalyst-rich 2022 as HEO looks to build on recent positive developments and capture incremental growth opportunities, supported by its resiliency and financial strength.”

Diversified Industries: Cannabis

High Tide Inc. (HITI-X, “buy) with a $13.50 target. Average: $12.63.

Analyst John Chu: “We highlight HITI as a leading retailer which offers similar growth profiles to other industry participants, but with a lower risk profile.”

IM Cannabis Corp. (IMCC-CN, “buy”) with a $9.25 target. Average: $7.31.

Mr. Chu: “IMCC stands out as having significant international exposure (especially to Israel) with good sales visibility and an asset-light model.”

Rubicon Organics Inc. (ROMJ-X, “buy”) with a $4.25 target. Average: $4.13.

Mr. Chu: “ROMJ offers a leading brand in the highly sought-after premium/super-premium segments, with expectations that it will soon reach positive EBITDA.”


Lifecos: Sun Life Financial Inc. (SLF-T, “buy”) with a $76 target. Average: $76.21.

Analyst Doug Young: “There are five themes we like. First, it increased its medium-term underlying Return On Equity target to 16 per cent-plus from 12–14 per cent and was able to generate a 15.4-per-cent underlying ROE in the year to date to 3Q21, despite lower interest rates, a significant amount of excess capital and SLC Management not contributing to its full potential. Second, we see several drivers of earnings growth over the coming year—its US group insurance business (including recent acquisitions), getting to scale in Asia, SLC Management hitting the inflection point and potential capital deployment. Third, by our math, SLF has $2.0-billion or more in excess capital and debt capacity, and generates an attractive amount of excess capital annually, partially from MFS. Fourth, MFS has been performing well, with margins at the top end of management’s guidance. Fifth, in our view, SLF will be the least impacted from adopting IFRS 17 in 2023 vs its Canadian peers.”

Banks: Toronto-Dominion Bank (TD-T, “buy”) with a $107 target. Average: $105.68.

Mr. Young: “There are four themes we like. First, TD is the most sensitive to interest rates vs Canadian peers and was by far the most impacted by central bank rate cuts over the past few years. In 2022, this headwind should fade, and central bank rate increases could result in a positive tailwind through the year. Second, TD has the highest exposure to credit cards, a business that was inordinately impacted by the COVID-19 pandemic. While we expect emerging trends in BNPL to negatively impact card balances, we still feel there is room for revolver balances to grow from abnormally low levels. Third, it has by far the most excess capital of the group at $17–19-billion-plus, by our math. If it decides to divest of its stake in Schwab, its excess capital would be even higher. Fourth, it has the lowest exposure to capital markets, a business where results could normalize in FY22 vs a very strong FY21.”

Diversified financials: goeasy Ltd. (GSY-T, “buy”) with a $200 target. Average: $233.13.

Analyst Gary Ho: “Our investment thesis is predicated on the following: (1) One of the biggest beneficiaries of the reopening trade, GSY has successfully maneuvered through the pandemic and has grown its loan book significantly in 2021. As Canadians gradually move past pandemic-induced lockdowns, loan book growth should rebound. We are targeting $2.4-billion by the end of 2022 vs $1.9-billion in 3Q. GSY’s loan book surpassed the $2.0-billion mark in early December and is trending above our $2.0-billion estimate for 4Q. (2) GSY has been vocal about its growth prospects (having recently acquired LendCare), and with $908-million of liquidity, we would not be surprised to see tuck-in and/or platform acquisitions in the next 12 months. M&A growth presents upside opportunity, as both our valuation and management’s three-year targets do not include future M&A. (3) GSY is the highest dividend grower among our universe and we expect this to continue—we forecast a 35-per-cent increase with 4Q results. (4) GSY remains a capital-compounder story and recent buyback activity supports our thesis (repurchased 333,000 since November 2021). With scale, the business could consistently generate a mid-20-per-cent ROE.”

Asset managers: AGF Management Ltd. (AGF.B-T, “buy”) with a $10.75 target. Average: $9.39.

Mr. Ho: “We foresee a few near- or medium-term positive catalysts: (1) The ban on upfront sales commissions on funds sold with the DSC option, which came into effect June 2022, provides locked-in EPS and FCF growth over the next two years, while the recent deal with Primerica reduces the risk of declining gross sales following the ban. (2) Retail net sales have consistently been in positive territory and continued momentum should lead to a valuation re-rate. (3) The deployment of capital (we estimate $300-million-plus in liquidity) that can be allocated to fund new growth initiatives, seed new strategies and share buybacks. (4) Growth in fees/earnings from its private alt platform. (5) Execution on SG&A cost containment to improve EBITDA and EBITDA margins”

Industrials/Transportation & Aerospace Technology

Héroux-Devtek Inc. (HRX-T, “top pick”) with a $26 target. Average: $23.75.

Analyst Benoit Poirier: “In aerospace & defence, HRX remains our favourite stock for 2022, as we believe the company is well-positioned to leverage its balance sheet to secure attractive M&A opportunities. Additionally, recent contract wins have enabled HRX to solidify its position and reputation with key customers (eg Boeing, Lockheed Martin and Dassault) for upcoming sizeable long-term opportunities.”

Stantec Inc. (STN-T, “buy”) with a $81 target. Average: $77.21.

Mr. Poirier: “In engineering and construction, STN is our preferred E&C name for a second consecutive year. The recent acquisition of Cardno’s assets marked a very welcome evolution of the firm’s M&A strategy and should demonstrate the true potential of larger-sized acquisitions for the story. We are confident that STN’s strong exposure to the U.S., combined with a successful integration of Cardno’s assets, should help narrow the valuation gap vs WSP in 2022.”

TFI International Inc. (TFII-T, “buy”) with a $161 target. Average: $132.65.

Mr. Poirier: “In transportation, we favour TFII for the multiple avenues of value creation embedded in the story, of which the vast majority do not depend on market conditions. Notably, we estimate the stock could be worth $230 per share if management delivers an adjusted operating ratio (OR) of 80 per cent at UPS Freight in 2024, assuming multiples of 10.5 times EV/EBITDA and 22.0 times P/E (all else equal).”

Oil & Gas

Advantage Energy Ltd. (AAV-T, “buy”) with a $10 target. Average: $9.13.

Analyst Chris MacCulloch: “AAV appears poised to emerge as a key player in the forthcoming energy transition as it looks to deploy its MCSS technology through the production of ‘blue natural gas’ (ie net zero emissions). Operationally, the company has been executing on its plan to grow production by 10 per cent annually, as it continues to fill spare processing capacity at Glacier, which is still operating well below nameplate capacity. Even following the recent pullback in natural gas prices, the company is poised to generate $150-million of FCF in 2022 based on the current strip and is on track to extinguish its remaining debt load by early 4Q22.”

ARC Resources Ltd. (ARX-T, “buy”) with a $21 target. Average: $18.13.

Mr. MacCulloch: “Over the past three quarters, ARX has been diligently working on the integration of assets following the strategic combination with Seven Generations earlier this year. The deal provided ARX with increased scale and expanded capital allocation flexibility—both of which have significantly boosted its cash flow profile while providing additional diversification across the hydrocarbon value chain. The company’s production profile is roughly 60-per-cent natural gas and 40-per-cent liquids, which provides exposure to both commodities. In our view, the stock is heavily discounted and the valuation does not reflect the fundamentals of a company that is highlighted by a strong cash flow profile, low debt metrics and a commitment to returning 50–80% of FCF to shareholders.”

Suncor Energy Inc. (SU-T, “buy”) with a $42 target. Average: $40.14.

Analyst Justin Bouchard: “The company’s deeply discounted stock price, strong core asset base and focus on capital allocation make it a compelling name for 2022. At its investor day in May, SU outlined a very clear strategy which included a ‘value over volumes’ approach, a focus on paying down debt, returning cash to shareholders and a commitment to absolute GHG emissions reduction targets (as opposed to intensity-based targets). We believe that SU will quickly return (if it isn’t there already) to its ‘operational excellence’ standard which had been on full display for the better part of the last decade. Continuing to deliver solid quarterly results (as shown in 3Q21), ramping Fort Hills to full capacity and delivering on the synergies associated with the recent assumption of operatorship at Syncrude are key near-term catalysts that we believe will add to the momentum.”

Power & Utilities

Algonquin Power & Utilities Corp. (AQN-T, “buy”) with a US$18.50 target. Average: US$16.57.

Analyst Bill Cabel: “Within our coverage, we expect AQN to show the highest EBITDA growth over the next two years, driven primarily by rate base investments and M&A (which offers an opportunity for significant rate base investment and ROE improvement).”

Boralex Inc. (BLX-T, “buy”) with a $50 target. Average: $46.73.

Mr. Cabel: “The onshore renewables name to own, in our view. We expect it will continue to win projects in France and New York, as well as new growth opportunities in the U.S.. We also expect EBITDA to grow at a 10–14-per-cent CAGR out to 2025.”

Northland Power Inc. (NPI-T, “top pick”) with a $52 target. Average: $48.06.

Mr. Cabel: “We remain extremely bullish on OFSW. With limited ways to play the OFSW space, we believe NPI is a standout IPP and expect it to grow its EBITDA by a 10-per-cent CAGR out to 2028.”

Precious Metals

Aya Gold & Silver Inc. (AYA-T, “buy”) with a $12.75 target. Average: $12.88.

Analyst John Sclodnick: “We believe that Aya’s upcoming catalysts will set the stage for an exciting 2022. We expect the company to deliver an impressive feasibility study for Zgounder and to exceed its 100moz resource target, with lots of room to further grow its resource. At Imiter bis, the assay results from initial drilling are expected any day now and strong results could show Imiter bis as the next development project in the portfolio and set 2022 up as an exciting year for follow-up drilling. Morocco is becoming an increasingly sought-after exploration and mining jurisdiction, and for other companies looking to gain control of prime underexplored land, Aya is the gatekeeper.”

K92 Mining Inc. (KNT-T, “buy”) with a $11.75 target. Average: $11.55.

Mr. Sclodnick: “We estimate K92 is trading at 0.57 times P/NAV on our base case $12.45 NAVPS assumption, a slight discount to junior peers at 0.61 times. Importantly, we believe our base case NAV to be overly conservative, implying the stock is not pricing in upside presented by resource expansion and higher throughput scenarios. In our recent initiation report, we looked at what we believe to be a very attainable bull case driving 32-per-cent NAVPS accretion and which features (1) growth of 30 per cent to Kora’s resource, (2) the new mill being built at 20-per-cent larger capacity, and (3) Judd mineralization extending 100 metres south and at depth.”

Skeena Resources Ltd. (SKE-T, “buy”) with a $23.50 target. Average: $22.94.

Mr. Sclodnick: “In our view, Skeena has a world-class project in Eskay Creek and with few acquisition targets remaining in Canada, we believe Eskay Creek tops the list of desired development projects in the country. It already has an annual production profile to move the needle for any company while lowering the cost base and jurisdictional risk profile of any acquirer, but we also expect that the upcoming FS will show an even larger production profile as there are a number of targets on the property to further bolster production.”


BSR Real Estate Investment Trust (HOM.U-T, “buy”) with a US$21 target. Average: US$19.77.

Analyst Michael Markidis: “A pure-play U.S. multifamily business with significant concentration in Texas (90 per cent). Expanding new and re-leasing spreads should drive outsized organic growth in 2022.”

Dream Industrial Real Estate Investment Trust (DIR.UN-T, “buy”) with a $19 target. Average: $19.22.

Mr. Markidis: “We believe underperformance vs industrial peers this year was due to an atypically high volume of equity issuance; this feverish pace will likely not be repeated next year. Performance in 2022 should also be boosted by continued operating momentum in Canada (more than 50 per cent of the portfolio).”

InterRent Real Estate Investment Trust (IIP.UN-T, “buy”) with a $21 target. Average: $20.

Mr. Markidis: “Robust organic growth, combined with the contributions from recently acquired properties, provide unmatched earnings upside. Our forecast calls for a two-year FFOPU CAGR of 13 per cent through 2023. In our view, the current unit price does not fully reflect this; IIP is trading at a 5-per-cent discount to NAV.”


CGI Inc. (GIB.A-T, “buy”) with a $132 target. Average: $127.64.

Analyst Kevin Krishnaratne: “We believe the stock is set up for a re-rate in 2022 on its mix of strong organic growth, which we see accelerating alongside material M&A (more than $1-billion in spend in FY22 vs $100-million in FY21).”

Converge Technology Solutions Corp. (CTS-T, “buy”) with a $13.75 target. Average: $13.60.

Mr. Krishnaratne: “We see M&A as a very near-term catalyst which could add at least C$3.50 per share of upside to our $13.75 target.”

Quisitive Technology Solutions Inc. (QUIS-X, “buy”) with a $2.50 target. Average: $2.52.

Mr. Krishnaratne: “We believe the stock is a double on its existing businesses alone ($2.00) given the 50-per-cent-plus discount to peers, before considering optionality on LedgerPay, with its expected launch in 1Q being the next catalyst.”

Telecom & Media

Telus Corp. (T-T, “buy”) with a $33 target. Average: $31.56.

Analyst Jerome Dubreuil: “We estimate that T’s pure telecom operations trade at a lower multiple than BCE’s, which provides an attractive entry point for T given the company’s advanced fibre deployment. The major improvements to margin and FCF we foresee for T in 2023 are also attractive in our view as we understand that the valuation of T by several sell-side analysts is not yet based on 2023 estimates.”

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