Acumen Capital has released its top seven special-situation stock ideas for 2017. Special situations refer to investment ideas across a variety of sectors and market capitalizations. The list reflects the views of Acumen analyst Brian Pow.
The following four stocks have forecasted gains of over 20 per cent expected in 2017.
Terra Firma Capital Corp. (TII-X) has a market capitalization of about $43-million. While it is a microcap stock, the expected returns are large. Analyst Brian Pow has a target price of $1.05 and expected return of approximately 48 per cent. He notes insiders' significant ownership position, at 22 per cent, suggesting management's interests are aligned with shareholders. He believes the stock may have two near-term catalysts. The first potential driver is capital deployment, stating in his report that management "previously indicated in November that they had signed LOI's (Letter of Intention) for $40-million. Management is in the process of completing these transactions with full deployment expected by the end of the first quarter of 2017." The second potential driver for the share price was "further resolution of the loans in arrears that would allow TII to record revenue in the fourth quarter of 2016 and/or first quarter of 2017."
Investors in Firan Technology Group Corporation (FTG-T) were handsomely rewarded in 2016 with the share price rising to almost $4 from the low $2 range at the start of the year. Mr. Pow has a target price of $4.95, implying a potential return of approximately 26 per cent. The analyst is forecasting earnings per share to expand over 30 per cent to 41 cents per share in 2017 from 31 cents per share in 2016. He anticipates this circuit board maker may, "beat our estimates on better efficiencies, new contract wins, and further mergers and acquisitions."
Cargojet Inc. (CJT-T) was a high-flying stock in 2016, soaring to the mid-$40 level from the mid-$20s, and Mr. Pow believes this positive price momentum will continue in 2017. He has a target price of $55, suggesting a total return of approximately 20 per cent. Potential drivers to lift the stock price include the announcement of an earnings beat when the company reports its fourth quarter financial results in March, expanding margins, a future dividend hike as the company reduces its debt and a potential large contract win down the road with a contract currently held by a competitor expiring in 2019.
Next up is a stock that underperformed the S&P/TSX composite index last year, delivering a negative return, but is expected to rebound in the year ahead – Stella-Jones Inc. (SJ-T). Quebec-based Stella Jones is focused on producing pressure-treated wood products that include railway ties and utility poles. Analyst Brian Pow has a $52.50 target price, implying a total return north of 20 per cent. Mr. Pow believes the company will deliver modest growth in 2017, forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) to increase 6 per cent to $302-million in 2017, up from $285-million expected in 2016, and earnings per share to expand 9 per cent to $2.65 in 2017, up from $2.43 expected in 2016. He suggests that "weak tie demand in the back half of 2016 will likely recover in the first half of 2017" and regarding the utility pole operations, argues that it "was hit-and-miss in 2016 but should likely take a leading role in driving growth in 2017."
Rounding out the list are three stocks with more modest gains expected in 2017. Forecasted returns range from approximately 8 per cent to 12 per cent.
Stock prices of several restaurant-related securities listed on the Toronto Stock Exchange have been moving higher in recent months, including shares of the next top pick, MTY Food Group Inc. (MTY-T). MTY operates franchise quick-service and fast casual restaurants across North America with over 55 brands such as Cultures, Vanellis, Thai Express and Manchu WOK. The company has expanded through a growth-by-acquisition strategy. While analyst Brian Pow expects "MTY to slow down the pace of acquisitions as the Company pays down debt from the Kahala Brands and Baja Fresh Mexican Grill acquisitions," he believes management may continue to make smaller tuck-in acquisitions in 2017. The company currently pays its shareholders a yearly dividend of 46 cents per share, equating to a yield of approximately 0.9 per cent. Given the low payout ratio, he believes the company has the ability to increase its quarterly dividend by at least 1.5 cents per share from its present level of 11.5 cents per share. His target price is $56, suggesting a potential total return of approximately 12 per cent.
The health care sector was the worst-performing segment in the S&P/TSX composite index in 2016. However, this health care stock was an exception. Shareholders of CRH Medical Corporation (CRH-T) saw the share price climb to over $7 from the low $4 level. The analyst has a target price of $8.40, suggesting a potential return of approximately 8 per cent over the next year and notes that, "Acquisitions are the biggest driver of upside for the business."
Lastly, Badger Daylighting Ltd. (BAD-T) has a potential total return of approximately 8 per cent, with a target price of $35. Mr. Pow notes improving industry conditions in the oil patch and seasonal strength that may lead to positive earnings revisions, along with growth from new initiatives. He went on to say in his report that "management acknowledged that a number of recent events (U.S. election, OPEC oil cut, and Canadian pipeline approvals) are all generally positive for the company."