Last week, the Canadian equity research team at Canaccord Genuity released its outlook for 2021 along with stock recommendations from its analysts.
Portfolio strategist and quantitative analyst Martin Roberge laid out a positive outlook for the year ahead, expecting mass COVID-19 vaccinations to lead to acceleration in economic activity by mid-2021.
In the research note, he called for “mid/late-cyclical sectors leading the market, early cyclicals performing in line and defensives lagging.” He added, “This is very much in line with our strategy whereby we neutralize the growth-vs-value tilt and focus instead on arbitraging value cyclicals (energy, materials, industrials and financials) over value defensives (consumer staples, REIT’s, utilities and telcos).”
In terms of selecting stocks, growth versus value, he argued, “There should be room for both growth and value sectors in investor portfolios in 2021.”
Listed below are the top 22 stock picks grouped by their respective industry exposures.
Cannabis
For investors seeking exposure to cannabis stocks, there are two recommendations.
Analyst Matt Bottomley has a “speculative buy” recommendation on multi-state operator Columbia Care Inc. (CCHW-CN), calling for the share price to more than double to $13.
He anticipates the company will become profitable in 2021 forecasting adjusted earnings per share of U.S. 19 cents. He noted that the company has exposure to two budding markets, “We believe that the introduction of adult-use programs in New Jersey and Arizona, with a combined estimated peak market revenue opportunity of approximately U.S. $4.75-billion, could become a material contributor to the company as early as H2/21 [second half of 2021].”
Analyst Derek Dley has a “speculative buy” recommendation on Trulieve Cannabis Corp. (TRUL-CN).
“We believe the company is well positioned for healthy revenue and EBITDA growth in 2021, as Trulieve continues to capture the majority of market share in the fast-growing Florida medical market, and benefits from recent expansion into new states such as Pennsylvania and Massachusetts,” he said.
With a target price of $60, he anticipates the stock will deliver a 43-per-cent return to investors. The company is currently profitable, expected to report earnings per share of 56 US cents in 2020, jumping to US$1.45 in 2021.
Consumer Discretionary
Shares of AutoCanada Inc. (ACQ-T) have more than doubled in 2020 and the ride is far from over, according to analyst Derek Dley. He expects the share price to cruise up to $32 driven by a combination of organic and acquisition growth.
“We believe the realignment of AutoCanada’s business following the implementation of the Go Forward Plan to focus on developing the higher-margin and economically resilient operating segments, combined with the company’s digital retail strategy, will reward investors with stable earnings growth,” said Mr. Dley.
Energy
In the energy space, three stocks are recommended.
Analyst Anthony Petrucci expects ARC Resources Ltd. (ARX-T) to rally roughly 50 per cent to $9, while providing shareholders with an attractive yield of 4 per cent.
The analyst highlightED the stock’s attractive valuation (trading at a discount relative to its peers) and strong balance sheet, “ARC is on track to deliver organic production per share growth in 2020 of approximately 13 per cent, which ranks among the highest in the space. While 2021 growth is expected to be more muted, with the elevated production level we forecast ARC will generate roughly $775-million in cash flow in 2021, versus a capital spend of approximately $400-million. After dividend commitments of approximately $85-million, this suggests ARC will still generate nearly $300-million in FCF [free cash flow] in 2021.”
Mr. Petrucci’s other recommendation is newly-listed Topaz Energy Corp. (TPZ-T) with a target price of $18.50, implying 33 per cent potential upside.
He said, “Topaz itself presents a unique opportunity within the space, given its relationship with Tourmaline (one of the few producers in the space forecast to grow production), its concentration on natural gas assets, and its investment in infrastructure, which augments its royalty revenue stream.”
Keyera Corp. (KEY-T) is a top pick by analyst John Bereznicki.
“For those looking to benefit from a commodity price recovery in 2021 amidst a volatile fundamental backdrop, we believe Keyera offers a compelling mix of offensive and defensive attributes,” he said.
This energy infrastructure play has an 8-per-cent dividend yield and target price of $26, representing an 11 per cent expected price return.
Financials
The lone financials stock recommended is ONEX Corp. (ONEX-T) with a target price of $84, up 17 per cent from Friday’s close.
Analyst Scott Chan highlightED three potential catalysts, “1) improvements in fund performance leading to carried interest; 2) deploying excess capital to support NAV growth; and 3) better Asset & Wealth Management profitability to drive value within this segment.”
Materials
Burcon NutraScience Corp. (BU-T) develops plant-based proteins from pea, canola, soy, hemp, and sunflower seeds. The share price has roughly tripled in 2020 and analyst Tania Gonsalves believes the stock has room to run further. She has a target price of $4.50, implying a 54-per-cent gain from Friday’s close.
Ms. Gonsalves noted, “Last year, Burcon licensed its pea and canola proteins to Merit Functional Foods, a JV [joint venture] of which it owns 33 per cent. In August, multinational agribusiness Bunge Limited (BG-N) purchased a 25 per cent stake in Merit. As one of the top oilseed and grain companies in the world, we believe Bunge’s interest in Merit meaningfully de-risks the commercial outlook and provides a potential exit strategy for Burcon. Merit has already signed Nestlé, the world’s largest food and beverage company, as a customer earlier this year. With Bunge’s backing, we expect more big names being brought to the table.”
Industrials
The housing market has seen an explosion in demand.
With strong industry fundamentals, Hardwoods Distribution Inc. (HDI-T) is analyst Yuri Lynk’s top pick. He has a target price of $31, which suggests a potential 17 per cent price return.
He noted, “Residential markets account for approximately 50 per cent of HDI’s sales and the outlook for the segment is very positive based on leading indicators.”
Gold
For gold bugs, analysts have five stock recommendations.
Artemis Gold Inc. (ARTG-X) owns a 100-per-cent interest in the Blackwater Gold Project located in British Columbia. The company has a strong management team who previously founded Atlantic Gold Corporation, which was sold less than five years later. Insiders own over 40 per cent of the shares outstanding, aligning their interests with those of its shareholders.
Analyst Kevin MacKenzie has a “speculative buy” recommendation and a target price of $13.
He said: “We expect that management will look to de-risk Blackwater by advancing it into production, at which time the asset, in our view, will be among the more compelling acquisition targets for the more established mid-tier to senior producers.”
Analyst Carey MacRury has a “buy” recommendation on gold producer B2Gold Corp. (BTO-T) with a target price of $12, reflecting a potential price return of 68 per cent in addition to its nearly 3-per-cent dividend yield.
“B2Gold remains our top pick among the senior producers, with strong FCF [free cash flow] generation, a strengthening balance sheet, exploration and organic growth potential at Fekola and Gramalote, and trading at a discount to its senior peers,” said Mr. MacRury.
Mr. MacRury has a target price of $26 on Osisko Gold Royalties Ltd. (OR-T) noting, “In 2021, we expect 33 per cent growth in GEOs [gold equivalent ounces] with further upside potential from multiple potential catalysts, including a PEA [preliminary economic assessment] on the Malartic underground project.”
Equinox Gold Corp. (EQX-T) is another gold producer making it on the top picks list. Analyst Dalton Baretto anticipates the share price will rebound to $22.50.
He remarked, “On the negative side, the company continues to suffer an opportunistic blockade of its flagship Los Filos mine by a local community, which we view as teething pains post the LMC merger. Looking forward, we believe the blockade will be resolved by year-end, and that the investment community will pivot to focus on the company’s primary attributes. These include an unparalleled, low-risk, fully funded growth profile, leverage to gold prices, strong management team, access to low-cost capital and potential catalysts on the horizon.”
With operations in Papua New Guinea, junior gold producer K92 Mining Inc. (KNT-T) has delivered large gains to investors in 2020. Earlier this month, the stock graduated to the Toronto Stock Exchange from the TSX Venture Exchange.
Analyst Tom Gallo has a target price of $12.50. He said, “We believe the near-mine exploration potential of epithermal targets bolsters future resource growth expectations, and significant porphyry targets on the property, including Blue Lake, could lead to game-changing discoveries.”
Copper
With its share price tripling in 2020, this small-cap copper play Capstone Mining Corp. (CS-T) has been stellar performer in 2020 and Mr. Baretto expects its price momentum will continue in 2021.
He anticipates the stock price will reach $3, up from its current level of $2.35.
He noted several potential catalysts in 2021 including the “Ramp-up of the Cozamin expansion project - Q1 [first quarter]; Cozamin pillar recovery study - Q1 [first quarter]; PV3 optimization study - Q2 [second quarter]; Cozamin exploration updates; Santo Domingo JV [joint venture] process ; potential accretive streaming transaction at Santo Domingo; acquisition by a larger producer.”
Uranium
Supply concerns have boosted uranium prices in 2020. For the second time this year, on Dec. 14, Cameco Corp. (CCO-T), the world’s largest uranium miner, announced its plans to temporarily suspend production due to rising risks from COVID-19. In March, Cameco announced it had suspended production at its Cigar Lake uranium mine due to the coronavirus pandemic.
NexGen Energy Ltd. (NXE-T) is a uranium exploration and development company with operations in Saskatchewan. Analyst Katie Lachapelle has a target price of $4.
She said, “With global uranium supply now in a record supply deficit (which we expect to continue), and the outlook for nuclear demand improving, we believe 2021 could be a pivotal year for uranium and uranium equities. NexGen is our top pick in the uranium space given its superior asset quality, low jurisdictional risk, leverage to uranium, strong balance sheet, and ability to execute on near-term catalysts.”
REIT
Ottawa-based Minto Apartment REIT (MI-UN-T) is a top pick by analyst Mark Rothschild.
In the report, Mr. Rothschild said, “We acknowledge that some of the potential headwinds facing residential real estate (namely, a prolonged slowdown in immigration, the possible rolling back of government support measures and the threat of new supply from completing developments and the conversion of short-term rentals such as Airbnb units) are arguably most acute for apartment real estate in more urban locations (such as that to which Minto is heavily exposed).”
Despite these challenges, he believes the REIT is undervalued with significant upside potential. He has a target price of $26, up 28 per cent from its Dec. 18 closing price.
Mr. Rothchild’s second recommendation is WPT Industrial REIT (WIR-U-T), “WPT offers pure-play exposure to the US industrial and logistics market, which we believe will continue to benefit from the accelerating growth in e-commerce sales as a result of COVID-19.” He has a target price of U.S. $16.
Technology
Absolute Software Corp. (ABST-T), with a target price of US$16, is seen as an undervalued software stock that has significant upside potential.
“With US$115-million plus in cash on hand and ongoing positive cash flow, the company has the balance sheet to continue to invest in driving organic growth, but management may also consider tuck-in acquisitions that expand capabilities or further grow its addressable market,” said analyst T. Michael Walkley.
Ottawa-based Kinaxis Inc. (KXS-T) is a cloud-based supply chain management software provider.
The share price has been under pressure. On Dec. 14, Blue Yonder Group Inc. announced that it filed a lawsuit against Kinaxis for patent infringement. In addition, the share price plunged after the company released its third-quarter results.
With a target price of $250, analysts Robert Young and Richard Davis have a positive outlook on the stock despite the recent challenges, “Kinaxis shares are down approximately 20 per cent since its Q3 [third-quarter] results, due to a customer non-renewal. Investor concern on COVID-induced contract delays and potential for non-renewals, and the optics of weaker subscription term (on-premise customers) in 2021, together become a tailwind in 2022 as three-year contracts renew.”
Communications
Analyst Matthew Lee has a “top pick” recommendation on Stingray Group Inc. (RAY-A-T) and sees 37-per-cent potential upside in the share price. His target price is $8.50.
He noted, “The company offers investors a robust combination of growth, cash flow, and reasonable valuation. Looking into 2021, we expect to see top-line growth propelled by a combination of U.S. commercial music opportunities, international SVOD [subscription video on demand] expansion, and a recovery in radio.”
Media
Analyst Aravinda Galappatthige has high expectations for this micro-cap stock – Thunderbird Entertainment Inc. (TBRD-X). Its share price has doubled in 2020, and he believes there is more upside to come. He has a target price of $3.25.
He said, “With a strong balance sheet, a strengthening currency and an attractive M&A [merger and acquisition] landscape, we believe the company is well positioned to make more significant strides in this direction in 2021.” He added, “Management noted that through Q1 [first quarter], the company was in production for 25 shows commissioned by Netflix, NBCUniversal, PBS, WGBH, Corus, CBC etc., up from 21 in Q1/20. Management also indicated that in terms of visibility its pipeline now stretches well into F2022.”
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.
Jennifer Dowty