In January, BMO Nesbitt Burns’ equity research department released its top 24 Canadian stock picks for 2019.
Year-to-date, 12 of the 24 stocks have realized double-digit price returns. Eight stocks (or 33 per cent) have reported modest to neutral price returns, while four stocks (or just over 16 per cent) have delivered negative price returns.
Analysts remain bullish on all of their stock picks. Since the beginning of the year, only one stock was downgraded.
Listed below are BMO’s top stock picks for 2019, which are grouped into three return categories - those with positive absolute performance with double-digit price returns, those with modest to neutral performance, and lastly, stock laggards, those with negative price returns.
Positive performers
Air Canada (AC-T) – up nearly 53 per cent
Transportation analyst Fadi Chamoun had an “outperform” recommendation for Canada’s largest airline and target price of $42 at the start of the year. It’s a target price that has almost been reached.
He highlighted three potential near-term catalysts: “Expected strong fourth quarter 2018 results, the company’s investor day on February 28, 2019, and increased visibility into the impact of insourcing the Aeroplan loyalty program.”
However, what gave airline stocks a lift was consolidation activity.
Air Canada is purchasing Transat A.T. Inc. (TRZ-T) for approximately $520-million. The deal is expected to be completed in 2020. In May, Onex Corp. announced its plans to acquire Air Canada’s competitor WestJet Airlines Ltd. (WJA-T).
Air Canada’s share price is up nearly 53 per cent year-to-date.
Badger Daylighting Ltd. (BAD-T) – up 48 per cent
Calgary-based Badger is the largest provider of non-destructive excavating services in North America.
Analyst Jonathan Lamers had an “outperform” recommendation and target price of $41 based on a forward EV/EBITDA multiple of 8 times his EBITDA estimate for the 12-month period ending in the third quarter of 2020.
He noted that the company’s financial results have “exceeded expectations for the past six quarters” and suggested “there could be upside to the valuation if results continue to demonstrate margin stability or improvement.”
The share price has been in a steady uptrend in recent months, rising 48 per cent year-to-date. Mr. Lamers currently has an “outperform” recommendation and $53 target price on the stock.
Boyd Group Income Fund (BYD.UN-T) – up over 46 per cent
Winnipeg-based Boyd Group operates a network of non-franchised collision repair centers across North America, mostly in the United States, under banners such as Boyd Autobody & Glass, Gerber Collision & Glass and Assured Automotive.
In January, special situations analyst Jonathan Lamers had an “outperform” recommendation and target price of $135 based on a forward enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple of 14 times.
Mr. Lamers noted, “We expect annual earnings growth in the mid-teens to 20 per cent range from self-financed, small acquisitions and modest same-store sales growth.”
The share price is now up over 46 per cent with Mr. Lamers maintaining his “outperform” recommendation. His target price has increased to $190.
CCL Industries Inc. (CCL.B-T) – up 28 per cent
Toronto-based CCL Industries is a leading label company with operations in 40 countries.
In January, analyst Stephen MacLeod had an “outperform” recommendation and target price of $66.
Mr. MacLeod anticipated each of the company’s four business segments would deliver solid performance noting, “In the ‘core’ CCL segment, fundamentals remain positive,” “We see the Avery segment as having the biggest opportunity for margin expansion,” “In Checkpoint, RFID presents upside,” and “In Innovia, we see long-term margin potential in the mid-teens.”
The share price is nearing his $66 forecast. In May, Mr. MacLeod raised his target price by $2 to $68, and maintained his “outperform” call.
BSR Real Estate Investment Trust (HOM.U-T) – up nearly 28 per cent
This small-cap REIT with a market capitalization that is currently just over $400-million had an “outperform” recommendation by analyst Troy MacLean at the beginning of the new year with a target price of $11.25, which he has maintained.
In January, the analyst said: “Given the strong property fundamentals in most of the REIT’s markets and its significant and ongoing renovation program, we expect its strong organic growth will continue, which should be a catalyst for the unit price.”
Year-to-date, the unit price is up nearly 28 per cent and provides investors with an attractive monthly distribution of 4.17 US cents per unit or 50 US cents per unit annually.
Manulife Financial Corp. (MFC-T) – gain of 23 per cent
Insurance analyst Tom MacKinnon had an “outperform” recommendation and target price of $31. He anticipated double-digit core earnings per share growth, potentially between 10 per cent and 12 per cent, with the company benefiting from growth from its operations in Asia.
The stock price is up 23 per cent year-to-date but still has further upside potential, according to Mr. MacKinnon, whose target price was tweaked higher to $32.
Agnico Eagle Mines Ltd. (AEM-T) – up nearly 22 per cent
Toronto-based Agnico Eagle is a senior gold producer with mining operations in Canada, Finland and Mexico. The company is also engaged in exploration and development activity in the U.S. and Sweden.
At the start of the year, gold analyst Andrew Kaip had an “outperform” recommendation and target price of US$46, reflecting a price-to-cash flow multiple of 14 times his 2019 estimate.
The analyst’s strong conviction was based on the following expectations: “Agnico Eagle is expected to benefit from solid production growth and an improving free cash flow profile. We expect this to translate into an improving balance sheet, the potential for increased dividends and the company setting the stage for its next leg of growth.”
Rising trade tensions and global economic growth concerns have pushed the price of gold higher, giving this stock a lift.
Year-to-date, the share price is up nearly 22 per cent.
Mr. Kaip has maintained his “outperform” recommendation but hiked his target price to US$59.
Wesdome Gold Mines Ltd. (WDO-T) – up over 21 per cent
Wesdome is a gold producer with three projects, two in Ontario and one in Quebec.
Analyst Andrew Mikitchook had an “outperform” recommendation and target price of $4.75, which was surpassed in June. He is forecasting further upside in the share price with his current target price at $6.
CGI Group Inc. (GIB.A-T) - up 20 per cent
Montreal-based CGI Group is a leading global provider of consulting services, technological systems and solutions, and technology servicing.
At the beginning of the year, technology analyst Thanos Moschopoulos had great expectations for the stock with an “outperform” recommendation and $94 target price based on a price-to-earnings multiple of 20 times his 2019 estimate. He identified several potential drivers that may lift the stock price, including organic and acquisition growth as well as share repurchases.
Year-to-date, the stock has been a solid performer, rising over 20 per cent.
His “outperform” call is unchanged, but his target price has climbed to $107.
Toromont Industries Ltd. (TIH-T) – up 14 per cent
Vaughan, Ont.-based Toromont has two core business segments: The Equipment Group with Caterpillar dealerships, and CIMCO, a provider of refrigeration systems.
In January, industrial products analyst Devin Dodge had an “outperform” recommendation and target price of $66 based on a forward price-to-earnings multiple of 18 times.
He argued, “The outlook for construction spending in the company’s core markets remains favourable, while mining activities in its territories are primarily focused on gold, which is less sensitive to economic growth.”
The share price has been volatile.
By mid-April, the share price had soared to over $70, surpassing Mr. Dodge’s target price. However, by June 28, the stock price closed at just over $62.
The analyst has maintained his “outperform” recommendation but hiked this target price to $72.
Enbridge Inc. (ENB-T) – up 11 per cent
Calgary-based Enbridge is an energy infrastructure company.
At the start of the year, analyst Ben Pham had an “outperform” recommendation and $59 target price. Mr. Pham highlighted the company’s “industry-leading" growth rate, compelling valuation, attractive dividend yield, and pristine balance sheet.
In March, he trimmed his target price to $57.
ShawCor Ltd. (SCL-T) – up 10 per cent
Toronto-based ShawCor is an energy services company.
In January, analyst Michael Mazar had an “outperform” recommendation and target price of $32.
The analyst anticipated “additional backlog growth as 2019 progresses, particularly though larger contract award wins, which should act as catalysts.”
During the first quarter, the share price climbed to over $22 but dwindled back down to the $18 level by the end of the second quarter. The stock closed out the first half of 2019 with a gain of over 10 per cent.
Mr. Mazar maintains his “outperform” call but reduced his target price to $28 in May.
Stocks with modest to neutral returns
Loblaw Companies Ltd. (L-T) – up just under 10 per cent
Brampton, Ont.-based Loblaw is Canada’s leading food and pharmacy retailer with banners including Loblaws, No Frills, Real Canadian Superstore, Fortinos and Shoppers Drug Mart.
Consumer analyst Peter Sklar had an “outperform” recommendation and $70 target price.
He noted three key drivers: inflation, favourable year-over-year comparisons (previously reported a drag on earnings from the increase in minimum wage and generic drug reforms), as well as shareholder value created from the sale of its 61.6 per cent interest in Choice Properties REIT.
Mr. Sklar remains bullish on the stock. He has since hiked his target price to $83.
Suncor Energy Inc. (SU-T) – up 7 per cent
Analyst Randy Ollenberger has not adjusted his “outperform” recommendation or target price of $58 on this large-cap energy stock since the start of the year.
The share price peaked at over $46 in late-March but retreated to just under $41 by the end of June. Year-to-date, the share price is up 7 per cent, just shy of the 10 per cent return for the S&P/TSX energy sector index.
Pason Systems Inc. (PSI-T) – up nearly 4 per cent
Calgary-based Pason provides data management systems for oil drilling rigs.
Oil and Gas analyst Michael Mazar had an “outperform” recommendation and target price of $27, which remains the case. In January, he highlighted the company’s strong balance sheet, rising market share and “industry leading" margins.
Year-to-date, the share price is up over 3 per cent.
Bank of Nova Scotia (BNS-T) – up 3 per cent
At the start of the year, bank analyst Sohrab Movahedi had an “outperform” recommendation for Scotiabank and target price of $85.
He argued, “The benefits of its roughly $7-billion of capital deployed last year are expected to start accruing in 2019, positioning it well to deliver peer-leading EPS [earnings per share] growth.”
Year-to-date, the share price is up just 3 per cent, underperforming other bank stocks such as Royal Bank of Canada (RY-T), TD Bank (TD-T), Bank of Montreal (BMO-T) and National Bank of Canada (NA-T).
Mr. Movahedi has revised his target price down to $80 but is maintaining his “outperform” recommendation.
Tricon Capital Group Inc. (TCN-T) – up 3 per cent
Toronto-based Tricon has a portfolio of assets invested in the North American residential real estate market.
At the start of the year, special situations analyst Stephen MacLeod highlighted this growth stock. He had an “outperform” recommendation and target price of $13.50 based on a sum-of-the-parts (SOTP) calculation. He believed gains in the share price might stem from assets under administration (AUM) growth and net operating income (NOI) margin expansion.
Year-to-date, the share price is up just 3 per cent. He has not revised his recommendation nor his target price.
Teck Resources Ltd. (TECK.B-T) – up over 2 per cent
Vancouver-based Teck is a diversified mining company producing resources including copper, coal and zinc.
Metals and mining analyst Jackie Przybylowski had an “outperform” recommendation and target price of $48, which is still her forecast.
At the start of the year, the analyst expected to see "investment funds flow in to Teck as sentiment toward copper and commodity markets improve in 2019.”
The share price has been volatile but closed out the first half of 2019 with a modest 2.8-per-cent gain.
Fiera Capital Corp. (FSZ-T) - relatively flat
Montreal-based Fiera Capital is a leading independent publicly-traded asset management firm with over $144.9-billion in assets under management (AUM) as at March 31.
Analyst Nik Priebe had an “outperform” recommendation and target price of $14. The analyst noted the stock’s an attractive yield and conservative payout ratio.
He said: “Our constructive outlook on shares of Fiera Capital is underpinned by positive momentum in net flows, solid investment performance and stable management fees.”
The share price was off to a strong start in the first quarter climbing to the mid-$12 level but gave up these gains, closing out the first half of 2019 relatively unchanged.
B2Gold Corp. (BTO-T) – down 0.25 per cent
Vancouver-based B2Gold is a gold producer with five operating mines located in Mali, Namibia, the Philippines and two in Nicaragua.
Precious metals analyst Brian Quast had an “outperform” recommendation and target price of $5, which he has bumped to $5.50.
Negative performers
IAMGOLD Corp. (IMG-T) – down over 11 per cent
Toronto-based IAMGOLD is a mid-tier gold producer with four operating mines located in North and South America as well as Africa.
Analyst Andrew Kaip had an “outperform” recommendation and target price of US$6. The analyst viewed the stock’s valuation as attractive with the share price trading at a discount relative to its peers.
In addition, Mr. Kaip noted the stock’s high leverage to the price of gold. He said: “IAMGOLD has further potential to re-rate, in our view, driven by execution at Westwood and the integration of Saramacca at Rosebel.”
Year-to-date, the share price has declined over 11 per cent. In May, Mr. Kaip downgraded the stock to a ‘market perform’ and slashed his target price to US$3.50.
Encana Corp. (ECA-T) – down nearly 15 per cent
Calgary-based Encana is an oil and gas producer with operating in four attractive basins in North America: Montney, Duvernay, Permian and Eagle Ford.
Analyst Randy Ollenberger had an “outperform” recommendation and target price of US$11.
His investment thesis was: “Encana holds a strong portfolio of assets that are located in the top resource plays in North American. We believe that that company is well positioned to exceed investor expectations regarding the operating and cash generation upside associated with the pending acquisition of Newfield Exploration.”
The price of natural gas has been under pressure, along with Encana’s share price, which is down nearly 15 per cent year-to-date. In June, Mr. Ollenberger cut his target price to US$9, but his “outperform” call remains unchanged.
Kelt Exploration Ltd. (KEL-T) – declining 16 per cent
Calgary-based Kelt Exploration is an oil and gas producer with operations principally in west central Alberta and northeastern British Columbia.
Analyst Ray Kwan had an “outperform” recommendation and target price of $7, forecasting production per share growth of over 20 per cent. He said: "The company’s strong balance sheet and diversified natural gas risk strategy offer protection in a period of wide differentials and weak oil pricing in western Canada.”
Year-to-date, the share price has tumbled 16 per cent. Despite the weak performance, Mr. Kwan has maintained his “outperform” call and his target price is currently $7.50.
Fortuna Silver Mines Inc. (FVI-T) – down 25 per cent
Vancouver-based Fortuna is a silver producer with its Caylloma silver mine in southern Peru, its San Jose silver-gold mine in Mexico and the Lindero gold project in Argentina. The company is advancing its Lindero gold project with commercial production expected to begin later this year, at the end of the third-quarter.
In January, analyst Ryan Thompson had an “outperform” recommendation and target price of $7.75. The analyst argued that the stock was trading “at one of the most compelling valuation multiples in the group on 2020 cash flow estimates.”
Halfway though 2019, the share price of Fortuna Silver is down 25 per cent. Mr. Thompson has trimmed his target price by 25 cents to $7.50 and has maintained his “outperform” recommendation.
Jennifer Dowty