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Equity analysts at Desjardins Securities revealed their top picks for 2023 on Tuesday, emphasizing “stock picking will be paramount” as further market turbulence is anticipated.

“Wow—what a year 2022 was!,” they said. “Omicron dominated the early headlines but gave way to rate increases to help rein in the inflation juggernaut. The ‘COVID bounce’ drove markets up close to 19 per cent at this time last year, led by energy. This year has been tougher, with the S&P/TSX down 10 per cent year-to-date, again buoyed by energy (up 35 per cent).”

The firm said “signs point to a recession” entering the new year, predicting a “potentially shallow dive” in the first half of the year. That is likely to lead to further reduction in earnings estimates, “adding pressure” to equities.

“With inflation generally expected to moderate, rate hikes should taper and decline in 2H23 or 2024,” analysts said. “In 2H23, the equity markets could catch a nice tailwind, with several themes expected to emerge: (1) a shift from ‘risk off’ to ‘risk on’ trades, eg growth names (technology, healthcare), consumer discretionary vs staples, industrials, financials, etc; (2) a recovery in interest rate sensitive sectors like utilities and IPPs, REITs, telecom & media, etc; (3) deglobalization, onshoring and automation should support industrials and transportation; and (4) ongoing electrification (EVs, etc) could help IPPs [independent power producers], utility services and the battery metals sector.”

In a research report released before the bell, Desjardins analysts selected 22 equities “that should perform best given expected strong growth opportunities and catalysts.”

They are:

Consumer Staples/Consumer Discretionary

* Alimentation Couche-Tard Inc. (ATD-T) with a “buy” rating and $72 target. The average target on the Street is $69.92.

Analyst Chris Li: “Our top pick view is based on: (1) sustainable solid c-store trends driven by multiple initiatives (eg Fresh Food, Fast, localized pricing/promo/assortment, new loyalty program) and moderating inflation/higher traffic; (2) funds flow to staples that will benefit from an improvement in macro conditions; and (3) upside to FCF from fuel margins remaining elevated and value creation from a strong balance sheet (acquisitions and/or share buybacks). We believe the valuation is reasonable at 16.3 times forward P/E (vs the long-term average of 17.5 times).”

Diversified Industries

* Ag Growth International Inc. (AFN-T) with a “buy” rating and $55 target. Average: $55.27.

Analyst Gary Ho: “We favour AFN given (1) the robust momentum backstopped by a strong backlog and ag fundamentals; (2) the CEO’s focus on integration/optimization, organic growth and deleveraging; (3) the rapid deleveraging (should attract greater investor interest); and (4) the above should warrant a valuation re-rate.”

* Goeasy Ltd. (GSY-T) with a “buy” rating and $185 target. Average: $198.

Mr. Ho: “GSY is our top pick in the diversified financials space due to (1) the manageable credit performance despite macro headwinds; (2) a potential three-year guidance raise with the healthy loan book growth bolstered by the recent equity raise; (3) its prudent management team with a credible track record; and (4) attractive valuation—the stock presents an excellent risk/reward profile.”

* H2O Innovation Inc. (HEO-T) with a “buy” rating and $3.50 target. Average: $3.39.

Analyst Frederic Tremblay: “HEO is our other preferred name based on (1) the excellent organic growth outlook supported by a record backlog and a tidal wave of opportunities, which HEO can continue to capture via product innovation, synergies across the various business units and expansion of the distribution/sales network; (2) the business resilience stemming from the essential nature of water/wastewater treatment, secular sector tailwinds and HEO’s large base of recurring revenue; (3) the targeted improvements in cash flow generation through working capital management and margin expansion; and (4) a mouthwatering valuation.”

Financial Services


* Sun Life Financial Inc. (SLF-T) with a “buy” rating and $69 target. Average: $66.65.

Analyst Doug Young: “There are four themes we like. First, its medium-term underlying ROE target of 18-per-cent-plus under IFRS 17; while this will get a boost from a book value reduction under the new guidelines, it will be peer-leading. Second, we see several drivers of earnings growth over the coming year—contribution from the DentaQuest (DQ) acquisition and potentially easier comps (1H23) at its U.S. group insurance business, getting to scale and improving conditions in Asia, SLC Management hitting its stride and potential capital deployment. Third, by our math, SLF has $1.0‒1.5-billion-plus in excess capital and debt capacity, and generates an attractive amount of excess capital annually, partially from MFS. Fourth, MFS has been performing well even in volatile equity markets, with margins at the top end of management’s guidance.”


* Toronto-Dominion Bank (TD-T) with a “buy” rating and $105 target. Average: $101.56.

Mr. Young: “There are five themes we like. First, TD is the most sensitive to interest rates among its Canadian peers and is therefore best-positioned to benefit in a higher interest rate environment in FY23. Second, it has the lowest exposure to capital markets, a segment where we see headwinds for FY23 (similar to FY22). Third, we expect TD to record the highest cash EPS growth in FY23, partially due to the two aforementioned themes, along with the pending acquisition of First Horizon, which we expect to be 5‒7-per-cent-plus accretive to cash EPS in the first full year post-close. Fourth, TD offers exposure to high-quality Canadian and U.S. banking franchises. Fifth, if we back out its Schwab stake from the ‘P’ and ‘E’, the bank trades at 9.5 times our estimated FY23 cash EPS vs 9.2 times on average for the other Big 6 banks excluding BMO (11.2 times for RY and 9.7 times for NA)”

Industrials/Transportation & Aerospace

* Bombardier Inc. (BBD.B-T) with a “buy” rating and $82 target. Average: $60.93.

Analyst Benoit Poirier: “In aerospace & defence, BBD is our favourite stock for 2023 as we see many catalysts, with further opportunities to grow revenue (higher production, aftermarket ramp-up, defence and certified preowned business) and improve margins. We expect this to drive additional debt repayment and improve its financial position, which should command a re-rating, in our view. The company is on its way to achieving its 2025 objectives (likely to be revised upward in 2023), which could drive the stock above $150 per share in the long term.”

* TFI International Inc. (TFII-T) with a “buy” rating and $172 target. Average: $146.62.

Mr. Poirier: “In transportation, we favour TFII for its multiple avenues of value creation (OR improvement at TForce Freight and M&A). We estimate the stock could be worth $205 per share if management delivers an adjusted OR [operating ratio] of 80 per cent at UPS Freight in 2024, and we calculate an incremental value of $40 per share if it deploys its balance sheet toward a transformative deal.”

* WSP Global Inc. (WSP-T) with a “buy” rating and $186 target. Average: $181.07.

Mr. Poirier: “In engineering & construction, WSP is our preferred name for many reasons: (1) disciplined approach toward M&A and ability to take advantage of opportunities that could arise from a potential recession, (2) solid organic growth opportunities in many subsectors (ie environmental and the U.S.), (3) push toward a 20-per-cent EBITDA margin in the long term, and (4) ESG tailwinds.”

Metals & Mining

* Atex Resources Inc. (ATX-X) with a “buy” rating and $1.20 target. Average: $1.47.

Analyst Jonathan Egilo: “We are excited for the initial results of ATEX’s Phase III drill program. Thus far, the high-grade 1-per-cent Cueq core of Valeriano has been intercepted twice, with intercepts of 272m and 550m, spaced 250m apart. While Valeriano’s footprint has already proven to be massive (we calculate nearly 1b tonnes in scale), our focus (and we believe that of the market) lies completely with expanding the high-grade core. Based on the first two holes, we estimate 80Mt of 1-per-cent Cueq material has been defined. We anticipate that ~200Mt would need to be defined to justify Valeriano as a standalone project. With the Phase III drilling massively stepping out by 200m in both directions along strike, in addition to targeting a potential second high-grade trend, we believe Phase III has the potential to meet or exceed our 200Mt hurdle. While we recognize our NAVPS is effectively a bullcase scenario that assumes the high-grade core grows to 200Mt, we believe that as this scenario is proven out, the stock could begin to re-rate closer to our NAV; the stock currently trades at 0.23 times our NAVPS estimate.”

* GoGold Resources Inc. (GGD-T) with a “buy” rating and $3.55 target. Average: $4.02.

Mr. Egilo: “We believe 2023 could be a transformative year for GoGold, driven by the company’s recent acquisition of the Eagle concession. The company’s focus is now on developing Eagle as an initial, high-grade underground mine with a low-capex build and quick payback period, which would in turn self-fund the remaining 250moz Ageq within the Los Ricos district. The upcoming year should be catalyst-heavy. Eagle is returning the best assays ever seen at Los Ricos and we anticipate regular exploration updates from this target, in addition to the Los Ricos South main deposit, which is being reconceptualized as an underground mine rather than an open pit. Management plans to expedite development at Eagle, with the possibility of beginning construction of a 1,000–1,500tpd underground mine by the end of next year. The stock trades at a P/NAV of 0.65 times vs silver producers at an average of 1.19 times.”

* Karora Resources Inc. (KRR-T) with a “buy” rating and $6.50 target. Average: $6.01.

Analyst John Sclodnick: “Karora remains our favourite gold producer for its fully funded growth profile in a top-tier jurisdiction; this has been significantly derisked since its acquisition of the Lakewood mill and development of the second decline at Beta Hunt, which is ahead of schedule for completion in 1Q23. The company remains on track to achieve its goal of doubling production to 200koz in 2024 from 2020 levels and bringing AISC [all-in sustaining costs] down to US$900 per ounce (2022 AISC guidance of US$1,100–1,200/oz). Additionally, Karora released a PEA on the nickel resource at Beta Hunt, which would see average nickel by-product credits of US$50–70/oz of gold. The company controls a massive land package in Western Australia with significant expansion potential and is surrounded by larger producers. The stock currently trades at 0.68 times NAV vs peers at 0.62 times. With its operations consistently meeting or exceeding expectations, we believe that a significant premium valuation to peers is warranted.”

Oil & Gas

* Advantage Energy Ltd. (AAV-T) with a “buy” rating and $15.50 target. Average: $14.77.

Analyst Chris MacCulloch: “It has been another busy year at AAV, riding the wave of windfall natural gas prices, which enabled the company to achieve and eventually dip below its $200-million corporate net debt target. As a result, AAV is now planning to return 100 per cent of FCF to shareholders through buybacks, with $129-million repurchased to date this year (as of October 31) through its NCIB and upwards of $100-million from a SIB scheduled to close on December 16 (between $11.20 per share and $12.90 per share). The aggressive share repurchase program, in tandem with 10-per-cent annualized organic production growth, was designed to supercharge CFPS growth — which management and the board view as the key corporate metric. Going forward, we see the company generating more than $250-million of FCF next year at current strip prices, which would effectively exhaust another NCIB (renewing in April) by mid-2023, conservatively assuming our $15.50 price target as the cost basis for buybacks. Meanwhile, AAV also retains a significantly under-levered balance sheet with only $80-million of net debt exiting 3Q22, thereby providing $120-million of additional dry powder for share buybacks over the coming quarters—which will likely result in capital returns exceeding 100 per cent of FCF generation in 2023.”

* Suncor Energy Inc. (SU-T) with a “buy” rating and $57 target. Average: $54.05.

Mr. MacCulloch: “In our view, the market should gradually begin re-evaluating the story with fresh perspective in 2023 following the sharp reduction in corporate net debt and enhanced capital returns, which should be accelerated by elevated refining utilization next year as the company capitalizes on soaring crack spreads while attempting to improve upstream mining results. Meanwhile, the stock continues trading at a sharp discount, now sporting a 4.3 times 2023 EV/DACF [enterprise value to debt-adjusted cash flow] multiple (vs the Canadian integrated peer group average of 5.8 times) while offering an attractive 13-per-cent FCF yield based on current strip prices. In our view, SU is primed for a re-rating in 2023 and investors should jump on board for the voyage to improved stock price performance.”

Power & Utilities

* Boralex Inc. (BLX-T) with a “buy” rating and $47 target. Average: $46.23.

Analyst Brent Stadler: “The onshore renewables name to own, in our view. We expect BLX to continue to source new projects in impressive fashion in all core growth regions. It is also very well-positioned for M&A and could potentially beat estimates.”

* Capital Power Corp. (CPX-T) with a “buy” rating and $57 target. Average: $52.31.

Mr. Stadler: “The value and dividend growth play, offering exposure to the Alberta power market, M&A and re-rate potential through greening its natural gas fleet.”

* Northland Power Inc. (NPI-T) with a “top pick” rating and $49 target. Average: $47.73.

Mr. Stadler: “We remain extremely bullish on offshore wind. There are limited ways to play this space, and NPI has the largest relative ‘secured’ growth pipeline in the space (4.6 net GW), providing financing flexibility and growth.”

Real Estate

* Boardwalk REIT (BEI.UN-T) with a “buy” rating and $64 target. Average: $60.36.

Analyst Kyle Stanley: “With Alberta’s provincial in-migration accelerating and 72 per cent of NOI derived from non-rent-controlled markets, we believe BEI is well-positioned to benefit from growing multifamily demand. BEI was also a leader in opex containment through 2022. However, it continues to trade at a discounted valuation vs peers, which we view as unwarranted.”

* Dream Industrial REIT (DIR.UN-T) with a “buy” rating and $15.50 target. Average: $15.08.

Mr. Stanley: “With the largest publicly traded Canadian industrial portfolio, DIR provides investors with the greatest exposure to the incredibly robust Canadian industrial fundamentals and offers the most compelling mark-to-market opportunity in the industrial sector. On a valuation basis, it trades well below its historical average P/NAV discount and at a significant discount vs peers.”

* InterRent REIT (IIP.UN-T) with a “buy” rating and $16.50 target. Average: $14.85.

Mr. Stanley: “IIP is well-positioned in Canada’s core urban markets. The gain-to-lease opportunity has now surpassed pre-COVID-19 levels, and leasing demand has ramped up heading into the seasonally weaker winter months, improving the REIT’s pricing power.”

Telecom, Media & Tech


* Quebecor Inc. (QBR.B-T) with a “buy” rating and $35 target. Average: $33.35.

Analyst Jerome Dubreuil: “We see QBR as an underappreciated way to play the expected closing of the RCI/SJR merger. With the terms of the Freedom deal significantly derisking QBR’s national ambitions, we believe the market could warm up to the idea of a new, long runway of growth as more guidance is provided about integration costs, which we expect to be manageable.”

IT Services

* Quisitive Technology Solutions Inc. (QUIS-X) with a “buy” rating and $1.40 target. Average: $1.56.

Mr. Dubreuil: “We believe 2023 will function as PayiQ’s ‘coming-out party’ as management continues making investments in sales and marketing, and steps on the gas pedal toward commercialization. On November 9, QUIS announced a new partnership with Visa’s CyberSource, which facilitates adoption and integration of future clients. Live transactions have been completed on the Mastercard network, and the certification process with American Express and Discover are ongoing ... We believe QUIS’s share price has been overly affected by delays in the PayiQ launch. However, we believe PayiQ will not contribute to EBITDA in 2023 and, therefore, that no value for PayiQ is priced into the stock at this point; we also do not believe delays were due to management—it is difficult to control the situation when doing business with companies as large as credit card companies. We expect QUIS to be back in control of the PayiQ timeline after it receives certification from American Express and Discover in early 2023.”

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