After a “rollercoaster ride” in 2022 for companies in their Diversified Industries coverage universe, Desjardins Securities analyst Gary Ho and Frederic Tremblay expect the next year to “have its share of challenges given changing macro variables.”
“We head into 2023 with cautious optimism based on the mix of challenges and opportunities that we see,” they said. “To face difficult economic and operating conditions, we favour companies with resilient operations, cost discipline, balance sheet strength, internal and/or external tailwinds to fuel profitable growth, as well as compelling valuation.”
In a research report released Wednesday, the analysts named three stocks as their top picks for the next year. They are:
Ag Growth International Inc. with a “buy” rating and $55 target. The average on the Street is $55.27.
“We favour AFN given (1) the robust momentum backstopped by a strong backlog and ag fundamentals; (2) the CEO’s focus on integration/optimization, organic growth and deleveraging; (3) the rapid deleveraging (should attract greater investor interest); and (4) the above should warrant a valuation re-rate,” they said.
Goeasy Ltd. with a “buy” rating and $185 target. The average is $198.
“GSY is our top pick in the diversified financials space due to (1) the manageable credit performance despite macro headwinds; (2) a potential three-year guidance raise with the healthy loan book growth bolstered by the recent equity raise; (3) its prudent management team with a credible track record; and (4) attractive valuation—the stock presents an excellent risk/reward profile,” they said.
H2O Innovation Inc. with a “buy” rating and $3.50 target. The average is $3.34.
“HEO is our other preferred name based on (1) the excellent organic growth outlook supported by a record backlog and a tidal wave of opportunities, which HEO can continue to capture via product innovation, synergies across the various business units and expansion of the distribution/sales network; (2) the business resilience stemming from the essential nature of water/wastewater treatment, secular sector tailwinds and HEO’s large base of recurring revenue; (3) the targeted improvements in cash flow generation through working capital management and margin expansion; and (4) a mouth-watering valuation,” they said.