Skip to main content

The equity research team at Desjardins Securities revealed its 2021 outlook and top stock picks in a research note released Friday before the bell.

With an eye toward the lingering effects of the COVID-19 pandemic, the firm selected 25 equities with “the best growth prospects and/or the largest number of expected catalysts” for 2021.

“2020 is a year many of us would like to forget, given the COVID-19 pandemic,” the firm said. “The stock market saw a late-1Q plunge which was followed by an immediate bounce and recovery, aided by quick government intervention and decisive action taken by many companies to shore up balance sheets, cut costs and rein in capital expenditures. While markets have generally trended up following the rally to almost pre-pandemic highs, the upside was capped by a resurgence in COVID-19 cases and a divisive, colourful U.S. presidential campaign. Some sectors, such as IT, fared well during the pandemic as we adapted to work, learn and play at home; others, such as energy, suffered—for obvious reasons—as demand for oil dried up.

“We believe the set-up for 2021 is strong, with a broad recovery expected in the economy and markets. Tailwinds in 2021 include the development of multiple vaccines in record time to address the COVID-19 crisis, a recovery in GDP, greater political certainty and low interest rates. We expect a return to a more traditional sector recovery, with materials, energy, industrials and consumer staples/ discretionary likely to benefit, while IT and communication services could face headwinds. Moreover, we believe the growing focus on ESG/sustainable investing will continue to gather steam and become more of a key focus of investor decisions exiting the pandemic.”

Seeing “winning the battle” against the pandemic as the overarching economic objective heading into the new year, the firm expects “sluggish” growth for the Canadian economy in the first quarter followed by a “strong pickup” through the remainder of 2021.

“We still expect some of the sectoral dislocations caused by COVID-19 to be glaring in 2021,” it said. “Sectors such as aerospace, commodity extraction and commercial real estate will probably not obtain an automatic bailout post-vaccine. Sectors already vulnerable to technological change (ie physical retail) prior to COVID-19 will struggle to find their footing.”

Here are the firm’s equity picks for 2021:

Consumer Staples/Discretionary

Alimentation Couche-Tard Inc. (ATD.B-T, “buy”) with a $51 target

Analyst Chris Li: “We believe ATD is supported by many early-stage organic growth initiatives that could yield earnings upside over the longer term. In the near term, we expect valuation to be capped by sector rotation, renewed concerns about electric vehicles and declining EPS next year as ATD laps high fuel margins.”

Empire Company Limited (EMP.A-T, “buy”) with $42 target

Mr. Li: “Even though the market is no longer rewarding ‘stay at home’ beneficiaries for pandemic-driven growth, EMP is trading at a reasonable valuation of 13.6 times forward P/E, a discount to its three-year average (15 times) and MRU at 16.8 times. We believe this should provide downside support. While sector rotation may prevent valuation from reverting to its three-year average in the near term, we believe this should occur as EMP continues to achieve solid earnings growth despite lapping COVID-19-related benefits next year, supported by Project Horizon.”

Gildan Activewear Inc. (GIL-T, “buy”) with a $40 target

Mr. Li: “Uncertainty around the timing and shape of the economic recovery next year will likely keep the stock volatile. However, we believe the recovery is on track, supported by improving imprintables point-of-sales (POS) trends, cost reductions and solid free cash flow. While the ‘easy’ money has likely been made in the near term with the stock gaining 22% since GIL reported stronger-than-expected 3Q results in late October, we expect further upside next year as investors have more confidence that GIL will return to its pre-COVID-19 earnings power by 2022.”

Diversified Industries

Parkland Corporation (PKI-T, “buy”) with a $46 target

H2O Innovation Inc. (HEO-T, “buy”) with a $3 target

Analyst Frederic Tremblay: “While H2O Innovation operates in a completely different industry from Parkland, it offers the same resiliency, growth and financial strength attributes that provide a solid foundation for outperformance during a second wave of the pandemic and in a post-COVID-19 world.”

Diversified Industries: Cannabis

Rubicon Organics Inc. (ROMJ-X, “buy”) with a $5 target

Analyst John Chu: “There appears to be strong demand for flower products in both the value and super premium categories; Rubicon should benefit as super premium faces less competition and better pricing stability. Rubicon’s focus on organic products and sustainability helps differentiate it from most super premium producers.”

The Valens Company (VLNS-T, “buy”) with a $4 target

Mr. Chu: “Being one of the only companies that continued to generate positive EBITDA during the COVID-19 pandemic and weathering very weak industry demand for tolling services, Valens should start to see a rebound in its EBITDA.”

Neptune Wellness Solutions Inc. (NEPT-T, “buy”) with a $6 target

Mr. Chu: “The company boasts Costco, Unilever, Heinz, Clorox, Nestlé, Webber Naturals and Amazon as new partners in 2020. It has also listed Home Depot as a potential distribution partner. The company is positioning itself to have one of the most established distribution networks when the US market cannabis/hemp market opens up and a list of partners to produce a broad line of traditional home and personal care products.”



Sun Life Financial Inc. (SLF-T, “buy”) with a $66 target

Analyst Doug Young: “There are four themes we like. (1) It was able to generate a 14.3-per-cent underlying ROE in 2020 (year-to-date to 3Q20) despite all the market disruption (equity market volatility, decline in interest rates, COVID-19, etc), a significant amount of excess capital (and lower-than-target debt to capital ratio) and SLC Management not contributing its full potential. (2) We see several drivers of earnings growth over the coming year—its US group insurance business, getting to scale in Asia, expense management, SLC Management hitting the inflection point and potentially capital deployment. (3) By our math, SLF has just over $4-billion in excess capital and debt capacity, and generates an attractive amount of excess capital annually, partially from its ownership stake in MFS. (4) MFS seems to be bucking industry trends with improving net fund inflows, and margins have been at the top end of management’s guidance.”


Toronto-Dominion Bank (TD-T, “buy”) with a $77 target.

Mr. Young: “We preface this by saying we expect a bumpier ride for Canadian bank stocks early in FY21 on the back of uncertainties related to provision for credit losses/general credit trends as various loans come off deferral programs. With that said, there are four main drivers of our positive view. (1) While TD is the most sensitive to lower interest rates vs Canadian peers, we see this headwind tempering as we move through FY21. We are not expecting further rate cuts by the Bank of Canada or the US Federal Reserve. (2) TD has the lowest exposure to capital markets. Why is this good? Because this business outperformed expectations by a wide margin in FY20 for all the Canadian banks, and we expect results to temper next year, setting the stage for a tough year-over-year comp in FY21. We also view capital markets as a lower-valuation multiple business. (3) It has the highest CET1 ratio of the group, a positive from a defensive or offensive perspective. (4) We like its high-quality Canadian and US P&C banking franchises.”

Diversified financials

goeasy Ltd. (GSY-T, “buy”) with a $99 target.

Analyst Gary Ho: “Our investment thesis is predicated on: (1) GSY has been able to successfully weather the pandemic and remains well-insulated with its loan protection insurance program if economic conditions deteriorate. We forecast the loan book growing to $1.45-billion by the end of 2021 (up from $1.18-billion at 3Q20); (2) management has shifted to a more offensive stance, in our view: (i) new product launches (piloting a direct-to-consumer auto loan product in early 2021—the Canadian auto loans market represents a $26-billion opportunity; (ii) growing its POS distribution channel through its partnership with PayBright/Affirm; and (iii) studying international expansion opportunities, in particular the US and UK lending markets; (3) we expect a 30-per-cent dividend increase with 4Q results (highest in our coverage universe); (4) with scale, the business could consistently generate mid-20-per-cent ROE; and (5) with comfort on the above items, management could look to reinstate its three-year outlook in early 2021.”

Asset managers

AGF Management Limited (AGF.B-T, “buy”) with a $7 target

Mr. Ho: “We foresee a few near- or medium-term positive catalysts: (1) with the ban on upfront sales commission on funds sold with the DSC option coming into effect in June 2022, AGF’s EPS and FCF could double by FY23; (2) net retail flows have improved steadily into positive territory in 4Q FY20 and if this persists, we expect valuation to trend higher; (3) buildout of its private alt platform has begun to bear fruit (management is targeting $5-billion in private alt AUM by 2022 vs $2.8-billion today)—higher LP income and consistent carried interest should materialize over time; (4) focus on cost containment—AGF met its $175-milliom target in FY20; and (5) most conservative balance sheet of all asset manager peers with $70-million in cash and $144-million in private alt seed capital. Putting $70-million to work (or buying back stock) should bolster the EPS profile in the coming years.”

Industrials/Transportation & Aerospace

TFI International Inc. (TFII-T, “buy”) with a $78 target

Analyst Benoit Poirier: “In transportation, we favour TFII as we expect management to leverage its solid balance sheet (net debt/EBITDA of 1.2 times) and disciplined M&A strategy (ROIC of 20 per cent on average over the past three years) to seize accretive M&A opportunities, potentially including a transformative acquisition, to unlock shareholder value. We believe TFII also remains the best opportunity in our coverage universe to gain exposure to the growing e-commerce sector.”

Stantec Inc. (STN-T, “buy”) with a $47 target

Mr. Poirier: “In engineering & construction, we believe STN is well-positioned as management accelerates its M&A strategy and executes a second cost-optimization phase in early 2021. The company is also ideally positioned to benefit from potential infrastructure stimulus in the US (not in management’s outlook for 2021) given it has the highest exposure to the U.S. among our E&C coverage. These factors should enable STN to reduce its valuation gap vs peers.”

Héroux-Devtek Inc. (HRX-T, “top pick”) with a $20 target

Mr. Poirier: “In aerospace & defence, we favour HRX given its greater exposure to the defence segment, solid operational reputation and experienced management team, which places the company in an ideal position for the recovery.”

Oil & Gas

Suncor Energy Inc. (SU-T, “buy”) with a $26 target

Analyst Justin Bouchard: “While we remain cautious on crude oil pricing fundamentals for 2021, we believe that SU offers a comparatively low-cost and low-risk opportunity to position for the eventual recovery in pricing moving toward 2022 and beyond.”

Tourmaline Oil Corp. (TOU-T, “buy”) with a $35 target

Mr. Bouchard: “We continue to see a very bullish backdrop for natural gas pricing fundamentals over 2021, and TOU remains our favourite means to play the gas-weighted E&P space. We believe there is a once-in-ageneration opportunity to capture outsized benefits at a comparatively modest risk in the case of TOU owing to its investment-grade balance sheet (estimated 2021 D/CF of 0.7 times at strip), low-cost asset base and very capable management team.”

Power & Utilities

Algonquin Power & Utilities Corp. (AQN-T, “buy”) with an US$18 target

Analyst Bill Cabel: “A relative laggard in 2020, we believe AQN could benefit the most from economic reopenings. Furthermore, we expect that it could also be one of the larger beneficiaries of a Biden presidency, given its history of sourcing new projects in the US—this is likely to be very topical in 2021.”

Boralex Inc. (BLX-T, “buy”) with a $46 target

Mr. Cabel: “We expect that it will continue to win projects in France and New York, and could see new growth opportunities emerge on the U.S. west coast.”

Northland Power Inc. (NPI-T, “buy”) with a $48 target

Mr. Cabel: “OFSW should continue to be a hot topic among investors, and with limited ways to play the OFSW space, we believe it is a standout IPP. Its New York expansion could provide near-term growth.”

Precious Metals

K92 Mining Inc. (KNT-T, “buy”) with a $12.50 target

Aya Gold & Silver Inc. (AYA-T, “buy”) with a $5.65 target.

Analyst David Stewart: “We are most bullish on KNT and AYA as both companies are primed for a catalyst-rich 2021 and are set up for continued NAV growth in almost any metals price environment. We believe Kainantu and Zgounder are some of the most exciting projects in the entire precious metals sector. Central to our investment theses are the impressive drill results from both projects—and that’s what will drive value creation for the foreseeable future.”


WPT Industrial REIT (WIR.U-T, “buy”) with a $16 target

Analyst Michael Markidis: “WPT Industrial REIT, for its pure-play U.S. industrial exposure, growing momentum with private capital and significant earnings growth potential in 2021.”

Summit Industrial REIT (SMU.UN-T, “buy”) with a $15 target

Mr. Markidis: “Summit Industrial Income REIT, reflecting its pure-play Canadian industrial exposure, significant acquisition capacity and near-term development upside.”

Canadian Apartment Properties REIT (CAR.UN-T, “buy”) with a $57 target

Mr. Markidis: “Canadian Apartment Properties REIT, which we like for its defensive portfolio attributes, strong balance sheet and access to low-cost debt capital.”