Skip to main content

After a “buoyant” 2021 for Canadian equity markets, analysts at Stifel expect investors to “finally see value matters in portfolio returns” this year.

With that view, the firm announced its “top picks” for the first quarter of the year, featuring six new additions to the 20-stock list, in a research report released late Monday.

“With central banks tapering asset purchases and forecasts expecting them to raise interest rates over the next year, a litmus test for equities is at hand,” the firm said. “Despite recent volatility, many measures of valuation and speculation remain near record highs, sensitivity to this rate hike cycle may also be heightened.

“Further, with inflation in both the U.S. and Canada at 40-year highs, one may question whether central bankers will support equity markets as readily as they have in recent years. One of the most consistent outcomes from prior rate hike cycles has been a shift from momentum to value in equity markets.”

The six stocks added to the list are:

* Aya Gold and Silver Inc. (AYA-T) with a $12.75 target and 47.4-per-cent expected return. The average on the Street is $13.

Analyst Stephen Soock: “As a rapidly emerging intermediate silver producer, Aya continues to execute on its growth strategy. Over the past year, the new management team has optimized the Zgounder operation, defined a greater than 100Moz silver resource, and started work to expand production to 7Moz per year. Details of this expansion is what we see driving the next major step up for the stock. The 102Moz resource at Zgounder released last month will form the basis for a Feasibility Study outlining a 2,000 tpd expansion at the Moroccan operation due to be released this quarter. In our view, this is a significant milestone in the Aya story and a de-risking event for our DCF [discounted cash flow] model assumptions.”

* Canadian Natural Resources Ltd. (CNQ-T, “buy”) with a $67.50 target and 17 expected return. Average: $64.15.

Analyst Robert Fitzmartyn: “Canadian Natural has the platform to maximize returns to shareholders via a well-defined and well-executed strategy, which has recently been enhanced by a corporate commitment to buy back 1 per cent of its stock per quarter; we expect the company will reaffirm this intention in early January when it unveils its 2022 capital budget. For now, this remains outside of our forecast. However, considering prevailing crude oil prices, including a strong WTI and WCS C$ quote, we believe CNRL’s ability to accelerate returns to shareholders looks solid, while some of its peers continue to focus on debt reduction and resilient to renewed uncertainty on global oil demand with yet another COVID variant influencing economic outlooks. CNRL is positioned for leading free cash flow generation through lower relative sustained capital requirements. This is because the company has exhibited a longer life on assets held, a lower decline premise, capital discipline and operational excellence, all of which have enhanced equity shareholder value over the years. We believe the company will continue to generate excess free cash flow, such that it rapidly reduces net debt well past its target debt capitalization of $15 billion.”

* Crescent Point Energy Corp. (CPG-T, “buy”) with an $11.50 target and 51.7 per cent expected return. Average: $9.57.

Analyst Cody Kwong: “Based on our 2022 outlook, Crescent Point screens as having the potential to generate one of the highest rates of capital return among all its peers. Based on strip prices, we show the company poised to deliver excess FCF (net of its core dividend) of approximately $1.0-billion, or about $1.79 per share. A key reason why we have designated Crescent as a Top Pick is because we believe the market has under-appreciated not only the company’s efforts to maximize its FCF stream, but also its willingness to return this FCF to shareholders. Evidence of this willingness can be observed in the company’s recent 50-per-cent increase to its dividend while also pledging a further $100 million share buyback by the end of 1H22. Our estimates suggest that once Crescent reaches its debt target of $1.3-$1.4 billion (expected early 3Q22), it would have the capacity to offer a total implied cash yield of about 14 per cent, assuming 50 per cent of its available FCF was allocated entirely to a cash payout.”

* Docebo Inc. (DCBO-Q/DCBO-T, “buy”) with a US$100 target and 87.9 per cent expected return. Average: US$89.77.

Analyst Suthan Sukumar: “We view Docebo as the top secular growth story in our technology coverage. As a disruptive provider of SaaS-based learning management systems (LMS), Docebo has been gaining strong traction upmarket in the larger enterprise segment with recent notable blue-chip customer wins, such as Amazon, TD, Walmart, and RE/MAX, driving a track record of consistently strong growth, with revenue accelerating to greater than 60 per cent year-over-year growth in recent quarters. We see a durable growth outlook ahead with tailwinds from recent go-to-market and R&D investments that position the company to capture greater share of a global target market that is expanding as enterprises increasingly embrace hybrid work and leverage e-learning for employee upskilling/reskilling/retention to combat a tougher labour market.”

* Teck Resources Ltd. (TECK.B-T, “buy”) with a $50 target and 30.6 per cent expected return. Average: $43.71.

Analyst Alex Terentiew: “We believe 2022 to be a pivotal year for Teck as the company establishes itself as a global copper producer, backed by its strong copper growth pipeline (QB2 project start up in H2 2022) and windfall cash flow generated from current coking coal price strength. Although Canada, a relatively lower risk jurisdiction, is expected to contribute roughly 76 per cent and 57 per cent of 2022 revenues and NAV, respectively, Teck trades at a significant discount to its peers, owing to its large exposure to coking coal. However, we expect this valuation gap to diminish as copper overtakes coal as a major contributor to cash flow subsequent to the start-up of QB2.”

* Yamana Gold Inc. (YRI-T, “buy”) with a $10 target and 106.8 per cent expected return. Average: $7.44.

Analyst Ingrid Rico: “After a challenging 2021 for gold equities, we believe Yamana’s current valuation offers attractive value amongst the +1Moz gold producer peers, with Q4 tracking well to exceed expectations and quarterly production anticipated to surpass the target of 270,000 equivalent ounces of gold, which should place the company slightly above the FY guidance of 1M GEOs. Importantly, operations are delivering as planned (or slightly better) setting the stage well for the new year.”

The stocks remaining on the list are:

  • AirBoss of America Corp. (BOS-T, “buy”) with a $55 target (and an expected return of 27.5 per cent). Average: $55.50.
  • ATS Automation Tooling Systems Inc. (ATA-T, “buy”) with a $58.50 target (13.8 per cent). Average: $61.90.
  • AutoCanada Inc. (ACQ-T, “buy”) with a $65.50 target (63.8 per cent). Average: $60.14.
  • Capstone Mining Corp. (CS-T, “buy”) with a $7.25 target (27.4 per cent). Average: $7.68.
  • Enerplus Corp. (ERF-T, “buy”) with an $19 target (36.2 per cent). Average: $15.44.
  • Green Thumb Industries Inc. (GTII-CN, “buy”) with a $80 target (201.9 per cent). Average: $56.12.
  • Guru Organic Energy Corp. (GURU-T, “buy”) with a $24 target (56.4 per cent). Average: $21.88.
  • K92 Mining Inc. (KNT-T, “buy”) with a $14 target (110.5 per cent). Average: $11.61.
  • Spin Master Corp. (TOY-T, “buy”) with a $58 target (27.8 per cent). Average: $54.73.
  • Stantec Inc. (STN-T, “buy”) with a $79 target (14.5 per cent). Average: $78.29.
  • Tourmaline Oil Corp. (TOU-T, “buy”) with a $66.25 target (55.0 per cent). Average: $62.16.
  • Trican Well Service Corp. (TCW-T, “buy”) with a $4.40 target (47.7 per cent). Average: $4.12.
  • Trulieve Cannabis Corp. (TRUL-CN, “buy”) with a $135 target (322.0 per cent). Average: $80.20.
  • Wheaton Precious Metals Corp. (WPM-T, “buy”) with a $71 target (47.3 per cent). Average: $69.60.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error

Editorial code of conduct

Tickers mentioned in this story