FOCUS: Canadian small and mid cap equities
Top Picks: McCoy, Goeasy, Bird
MARKET OUTLOOK:
After a muted second quarter, Canadian equities performed very well in the third quarter of 2024. There were no summer doldrums this year for Canadian stocks, as the third quarter featured substantial volatility as well as continued merger and acquisition activity.
Drilling down into Canadian equity market attribution for the third quarter, there was a clear shift in investor preferences with a few previously out of favour sectors generating strong outperformance. Unsurprisingly, interest rate sensitive sectors such as telecom and real estate were standout performers, given the current downward trajectory of interest rates. Notably, sentiment has already shifted again so far in the fourth quarter with energy and materials stocks leading the way.
Our current focus is on third quarter earnings, and we will be watching closely for clues about each company’s prospects for 2025 and beyond. The current interest rate easing cycle provides an excellent backdrop for equities, and the opportunity set within Canadian small and mid cap stocks continues to be robust.
TOP PICKS:
McCoy Global (MCB TSX)
McCoy is an oilfield services company that we added to our portfolio recently. The company specializes in technology driven solutions used in well construction that reduce the amount of labour required on the rig floor, which lowers costs while improving worker safety. The balance sheet is pristine, the company is highly profitable, and we expect the stock to rerate as recurring revenue increases substantially in 2025 and 2026.
Goeasy (GSY TSX)
Goeasy has been one of Canada’s best performing financial stocks over the past decade. The stock was down 15 per cent over the past week after the company announced a debt refinancing along with a slight reduction in third quarter revenue yield guidance. We believe that the sell off in the shares is not warranted and that current levels represent an excellent entry point for investors, with the stock now trading under eight times 2025 consensus earnings.
Bird Construction (BDT TSX)
Bird is a construction and maintenance business that operates across Canada. Management recently announced aggressive three-year growth targets as well as a 50 per cent increase to their dividend. This company has a very healthy backlog, margins should continue to expand, and both top and bottom line growth have been impressive.
OTHER COMMENTS
Mainstreet Equity Corp(MEQ-T)
Excellent company with strong prospects. Will continue to own. Founder led, with lots of skin in the game. Demand of housing expected to keep growing. Does not lose any sleep over company. Mid-market apartments also continue to grow. No rent control in Western Canada - helps increase profits. Lots of "blue sky" to keep growing.
Lumine Group(LMN-X)
Excellent company with strong prospects. Will continue to own. Spin off from Constellation software. Will continue adding when share price is weak. Excellent margins with software products. Able to do large acquisitions.
Source Energy Services Ltd(SHLE-T)
Excellent prospects - energy service company with recurring revenues. Able to reduce debt. Recent M&A very strong - Trican partnership very good. Trading at 4x earnings - still cheap. Will continue to own. Expecting further share price appreciation.
Pizza Pizza Royalty(PZA-T)
Primarily an income vehicle (bond proxy). Hard to growth pizza growth for capital returns. Could be a good option for dividend investors. ~7% income is good option.
A&W Revenue Royalties Income Fund(AW.UN-T)
Growing quickly, but not investing at this time. Good yield, but not major capital appreciation. However, ~5% dividend yield is safe.
---------------------------
Source
https://www.bnnbloomberg.ca/investing/2024/10/25/jordan-zinbergs-top-picks-for-october-25-2024/
https://stockchase.com/expert/view/1469/Jordan-Zinberg
No comments:
Post a Comment