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Ryan Modesto, CFA, is CEO at 5i Research, a conflict-free investment research provider for retail investors offering research reports, model portfolios and investor Q&A, which is available to try for free. 5i Research provides content under an agreement with The Globe and Mail, which receives royalty compensation.

While the three highlighted companies here are in unrelated industries and moving for different reasons, they all have something in common: Each company has been unduly beaten up over the past six months, only to see its share price rally recently.

MTY Food Group (MTY-T)

You may not know MTY by name, but you have likely been a patron at one of their many establishments. The company’s portfolio includes brands such as Manchu Wok, Mr. Sub, TCBY, and The Works, as well as those acquired in their recent deal for Imvescor Group, such as Baton Rouge and Pizza Delight. MTY generates roughly half of its revenues in the U.S. and the other half in Canada. The company pays a dividend yield of 1.1 per cent, which has grown at a rate of roughly 15 per cent annually over five years. Insiders own over 20 per cent of shares, and the company has returned 85 per cent – excluding dividends – over the last five years.

Why MTY is on the move

MTY released a strong earnings report on July 11th, 2018. The company reported revenue of $89.8-million in the quarter and EPS of $0.79, beating analysts' estimates. While same-store sales growth was flat, within Canada it grew by 1.8 per cent, and that does not include results from Imvescor Group, which management noted increased 4.2 per cent since the transaction closed. The American side of the business is lagging, though, with same-store sales down in the recent quarter. U.S. growth will likely be the area investors watch going forward.

Covalon Technologies (COV-X)

Covalon is a company that we have recently issued a report on at 5i Research and hold in one of our model portfolios. Covalon provides products that relate to wound care and infection control in the form of dressings and bandages. This “small” Canadian company is seeing good growth, with a share price up 266 per cent over a one-year period and management owning over 50 per cent of shares. Covalon currently holds no debt.

Why Covalon is on the move

After a bit of a drawdown on the shares, which looked to be a case of selling when down, the stock saw a surge after Covalon announced it had won a series of contracts over a three-year period valued at roughly $100 million. This represents material revenue growth for the company, and we think this large deal will lead to more interest from other customers, acting as a seal of approval and putting the company’s products on other customers' radars.

Cogeco Communications (CCA-T)

Cogeco is a communications company that trades at a valuation below its peers, with a P/E ratio of just 11.5 and a dividend yield of 2.65 per cent. The dividend has grown at an annual rate of just over 11 per cent annually for the last five years.

Why Cogeco is on the move

Cogeco reported third-quarter results that, on their own, were not overly inspiring. However, management mentioned plans to move into the wireless space. CCA has been buying up spectrum lately in preparation for this move and is now looking at avenues through which they can execute this strategy. While there are a lot of questions remaining, we think the purchase of wireless spectrum and management’s recent comments demonstrate that Cogeco is serious about this new business. Making itself more of a direct competitor to companies like BCE and Rogers could allow its valuation to expand closer to telecom companies. While competition would be strong, a new entrant like Cogeco would only have market share to gain.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 26/03/24 5:43pm EDT.

SymbolName% changeLast
COV-X
Covalon Technologies Ltd
-4.17%1.15
MTY-T
Mty Food Group Inc
-0.5%51.46
CCA-T
Cogeco Communications Inc
+0.2%60.22

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