Frank Gunn/The Canadian Press
Euro Pacific Canada, a Toronto-based brokerage, is out today with its top stock picks for 2014. It's a diversified list of companies, ranging from REITs and health care, to telecom and industrial minerals.
Analysts at Euro Pacific Canada, which set up shop a few years ago, work in conjunction with those at Connecticut-based broker-dealer parent Euro Pacific Capital, which was founded by the well-known economist and financial commentator Peter Schiff. It focuses on emerging Canadian companies, hard asset strategies and foreign blue chip companies. As such, some of the recommended stocks for Canada aren't exactly household names.
Here are the seven stocks, and some selected commentary on them from Euro Pacific analysts:
Cipher Pharmaceuticals Inc. ($11 Canadian price target):
-Cipher is a Mississauga-based specialty pharmaceutical firm, with three already-approved and marketed controlled-release oral therapies targeting cardiovascular disease, pain management and dermatology – Lipofen, ConZip and Absorica/Epuris. It has the intention to grow its pipeline through additional product acquisitions or in-licensing deals in regional markets.
-The company should see sustainable cash flow from its lead drug Absorica, which would drive near-term profitability.
-Cipher's entire pipeline is now FDA-approved and positively contributing to EBITDA and cash flow.
-Absorica's U.S. market share growth started to attenuate in the fourth quarter of fiscal 2013 but cumulative sales are still exceeding the analysts' original expectations.
Novadaq Technologies Inc. ($23 U.S. price target)
-Novadaq is a Mississauga-based medical imaging firm focused on developing its Indocyanine green-based real-time fluorescence imaging platform SPY in multiple surgical markets.
-There is increasing evidence that the SPY platform will be a necessity in several niche surgical markets.
-Novadaq and its industry-leading SPY platform represent an attractive acquisition target for any mature global medical imaging firm.
Mainstreet Equity Corp. ($39.50 Canadian stock target)
-Mainstreet's home markets of Western Canada will continue to be one of the main drivers of the multi-family sector through 2014.
-The multi-family sector with a high number of short, rolling leases is perfectly suited to profiting from inflationary market scenarios.
-Mainstreet's rejuvenation strategy also provides constant internal growth without the need for further acquisitions.
-The company sits on an enviable amount of dry powder to deploy at a moment's notice as opportunities arise.
HealthLease Properties REIT ($12.50 Canadian price target)
-HealthLease's triple-net lease structure continues to be unique in Canada and provides stable, growing and inflation-protected net operating income growth.
-With long-term, inflation-linked, single-tenant/operator leases and correspondingly long-term debt, HealthLease provides investors one of the safest yields in a high inflation/higher interest rate environment.
Telus Corp. ($43 Canadian price target)
-Euro Pacific believes expectations are low for wireless, leaving lots of upside for the telecom.
"Our selection considered the attractive target return at 18.9 per cent, potentially more aggressive returns based on wireless upside, and the strong defensive characteristics of its dividend, free cash flow, and NCIB (normal-course issuer bid)," the analysts said. "We are bullish on wireless growth prospects and management execution. We expect both dimensions to yield free cash flow compounded annual growth rate of 11.6 per cent from 2013-2018 with similar equity returns that would be complemented by the dividend yield."
DHX Media Ltd. ($6.25 Canadian price target)
-DHX Media is a Canada-based company engaged in the supply and distribution of television and film productions. The company creates, produces and licenses of family entertainment rights. DHX owns, markets and distributes over 8,500 half hours of children's entertainment content, and exploits owned properties through its consumer products licensing business.
"We see a prolonged battle across the traditional broadcasters, premium broadcasters, and OTTPs for content. We expect that large content owners such as DHX will outperform smaller peers who lack access to the buyers and new digital platforms. We see animated youth programming at the forefront given the value ascribed to its viewer demographics and the global reach of animated programming unencumbered by linguistic hurdles. The described environment should support organic growth pushing double digits. We then add the prospective value added through acquisitions where DHX's scale has been proven to shift buyer economics with legitimate revenue and cost savings," the analysts said.
-While the stock gained 222 per cent in 2013, they see more upside, given that buyer competition for content will support sustained appreciation in content.
5N Plus Inc. ($3 Canadian price target)
-5N Plus produces and sells specialty metals and chemical materials, many of which are important inputs to a number of growing segments of the global economy including solar photovoltaics and light-emitting diodes (LEDs).
"With the growing demand of industrial minerals in the electronic devices and clean technologies sectors, 5N Plus has experienced an increase in sales volumes in Q313. We believe that prices for strategic metals are near their bottom and that end-users are re-entering the market after two years, as stockpiles are being depleted. If growth in the technology and electronic sectors is sustainable, demand for the materials used in these technologies should grow and drive prices higher. Demand for LED lights is expected to increase as incandescent lights are phased out. The demand for smart devices such as tablets and cell phones are also expected to drive sales volumes, particularly in the emerging markets. With these factors in mind, we believe 5N Plus is well positioned to become the leading producer and supplier of specialty metals and chemical materials globally."
Darcy Keith