Equity analysts at Laurentian Bank Securities revealed their “preferred picks” for 2021 in a research report released on Tuesday.
The eight stocks selected are deemed to be their “best investment ideas” for the year.
“Year to date, LBS’ 2020 Preferred Picks returned 13.5 per cent (equal-weighted), outperforming the TSX Composite and Small Cap indices by 7.1 per cent and 4.2 per cent, respectively, aided by a sharp recovery post-March and our exit from the Oil & Gas (O&G) sector in May,” the firm said. “Our picks for 2020 were Altius Minerals Corporation (ALS-T), Argonaut Gold Inc. (AR-T), Aurora Cannabis Inc. (ACB-T), Boyd Group Income Fund (BYD-T), Extendicare Inc. (EXE-T), Marathon Gold Corporation (MOZ-T), PetroShale Inc. (PSH-V), TECSYS Inc. (TCS-T), TFI International Inc. (TFII-T) and Whitecap Resources Inc. (WCP-T).”
Broadly speaking, the firm said it’s seeing a “survival of the fittest” due to the impact of the COVID-19 pandemic, noting businesses that are “focusing on fundamentals and generating efficiencies are potentially witnessing further growth opportunities ahead as laggards lose out.”
”Similarly, our basket of Preferred Picks is generally defined by companies with sound business models, healthy balance sheets (with M&A consolidation remaining a key catalyst) and positive organic growth,” it said.”
By sector, here are the analysts’ selections for 2021:
Diversfied
NFI Group Inc. (NFI-T, “buy” rating, $26 target)
Analyst Nauman Satti: “NFI is well-positioned to benefit from a secular shift towards electric vehicles from its zero-emission bus & coach offerings. Unlike most other EV plays that have a greater risk of execution, NFI offers downside protection from: 1) its well-established client relationships, and 2) its platform-agnostic offering of traditional internal combustion engine (ICE) vehicles alongside EVs. We believe NFI will continue to benefit from new policy initiatives around carbon-emissions which should accelerate the replacement cycle for transit buses. Furthermore, in our view, the company’s EV opportunity is not fully reflected in the stock price.”
Diversified Technology
mdf Commerce Inc. (MDF-T, “buy” rating, $13.25 target)
Nick Agostino: “In picking MDF we note strong underlying fundamentals with e-commerce usage in the retail market increasing from 16 per cent pre-COVID to 30 per cent ending 2020, with industry experts suggesting a 60-per-cent adoption over the next years. We see this momentum as a tailwind for MDF’s Unified Commerce division and model in growing contributions from its top-10-global-grocer win, Aldi, announced on December 14, 2020, along with follow-on wins in this market niche. We look for MDF to grow its market share in Strategic Sourcing both through organic growth fueled by increased government spending and through M&A in the U.S. market. Adding to this, we anticipate a recovery in retail omni-channel spending through the course of 2021 as vaccinations are completed, benefitting MDF’s Supply Chain solutions. We expect the improved financial performance driven by the above along with on-going M&A and new partner announcements to fuel further multiple expansion.”
Gold
Marathon Gold Corp. (MOZ-T, “buy” rating, $5.75 target)
Barry Allan: “Marathon is currently advancing its Valentine Gold project in west-central Newfoundland toward production. Given an unusually-high degree of asset quality, as well as its significant size, if the market does not recognize the underlying value of the project as near-term milestones are achieved, an established gold producer should.”
Gold & Services
Major Drilling Group International Inc. (MDI-T, “buy” rating, $9 target)
Ryan Hanley: “Given our expectation that exploration spending should continue to increase due to depressed resource bases and increased levels of cash flow generation, along with the number & size of equity financings completed by exploration companies, we are adding MDI to our list of 2021 preferred picks. With its strong balance sheet & experienced management team, MDI remains well positioned to take advantage of increasing levels of demand for drilling services.”
Base & Precious Metals
Galway Metals Inc. (GWM-X, “buy” rating, $2.25 target)
Jacques Wortman: “A key thesis developed in 2020 was that the Jubilee, Richard, and George Murphy zones were part of one large mineralized system. An aggressive 2021 drill program is expected to further test these targets, culminating with a resource update. Given the exploration potential at Clarence Stream, GWM is a Preferred Pick for 2021.”
Industrials
SNC-Lavalin Group Inc. (SNC-T, “buy” rating, $31.50 target)
Mona Nazir: “Challenges plaguing the SNC story are not over, as of yet; however, the current stock price and valuation gap, is glaringly obvious. We believe that, as the story continues to de-risk, greater attention is warranted. After exiting LSTK (lump-sum turnkey) projects (backlog run-off continues) and with the Resources restructuring we believe that SNC’s operations are not only valuable but strong. The company continues to be part of the infrastructure build-out and expertise remains. Looking at the Canadian landscape simplistically, WSP (WSP Global) and STN’s (Stantec) market caps are 62 per cent and 24 per cent above current net revenue levels and while their margin profiles are superior to SNC’s we believe SNC’s inherent valuation gap cannot be ignored (50-per-cent discount). We believe as SNC resurfaces with a lower risk profile, and greater financial profitability and consistency it is well positioned for a multiple re-rating.”
Real Estate
InterRent REIT (IIP.UN-T, “buy” rating, $17.25 target)
Yashwant Sankpal: “InterRent is one of the largest apartment landlords in Canada, with 11,000 suites located primarily in Montreal, Ottawa, the GTA and the Niagara Hamilton region. While the REIT typically trades at a 15-25-per-cent premium to NAV, the pandemic meltdown in the stock market and the subsequent negative press about the sector (rise in vacancy and bad debt, government restrictions on rent increases / evictions in some markets) has brought down IIP’s valuation down along with the rest of the REIT sector. IIP has recovered some of the losses, but still trades at par with our NAV estimate. ... this consistent value creator should be trading at a 15-20-per-cent premium to NAV.”
Special Situations
Converge Technology Solutions (CTS-X, “buy” rating, $5.75 target)
Furaz Ahmad: “While CTS’s stock has increased over 170 per cent in 2020, we believe there is still material upside potential over the next 12 months and see a number of catalysts that may drive the stock higher. Given the highly fragmented nature of the IT Solution Providers (ITSP) industry, with 80k ITSPs (Internet telephony service providers) competing for market share, and the largest player only accounting for less than 5 per cent of the overall industry, we believe acquisitions will continue to be a focal point for growth, and a key catalyst as CTS continues to implement its roll-up strategy and expand coverage geographically to all NFL host cities in the U.S. Our 2021 forecast calls for top-line growth of 30 per cent, with organic growth of 10 per cent complementing CTS’s acquisition growth strategy.”
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David Leeder