In a research report previewing the tear for Infrastructure & Construction (I&C) and property services providers, Raymond James analyst Frederic Bastien and Bryan Fast expect to see further gains after a strong 2021.
“We witnessed a great performance from the group in 2021, with 9 stocks more than doubling the gains of the TSX over the year as a fast rebounding economy, widespread shortages, and supply chain issues created a perfect storm for many of the resources-linked names in our coverage universe,” the analysts said. “The first half played out as expected, with small caps (BDI, NOA, ALTG, WJX), cyclicals (RUS) and laggards (SNC) outperforming large-cap and defensive names, and overextended stocks returning to earth (BEP and RBA). 2H21 performance was more mixed, as flaring inflation concerns brought a long overdue government tapering closer to reality, and emerging COVID-19 variants put yet another stick in the wheels of economic recovery. These challenges notwithstanding, our professional services firms and engineering consultancies (CIGI, IBG, STN, WSP) delivered exceptionally strong results for the year. To the extent these companies will have a hand in helping governments implement their green recovery plans and organizations transition to a net zero future, we believe their stocks have more room to run.”
The analysts say recent volatility has brought many stocks in their coverage universe into “attractive risk-reward territory” and led them to “turn more aggressive” on three stocks, which they upgraded on Monday.
“What is clear to us, however, is that the Fed’s hawkish pivot (and other central banks tightening) will exacerbate valuation scrutiny,” they said. “This leads us to broadly favour value over growth, and cyclical sectors over defensive ones (much like we did exactly twelve months ago). While Omicron presents another headwind for reopening names, we still believe they are poised for a strong 2022.
“From this group of well-capitalized stocks, we offer five high-conviction ideas: CIGI, STN, FTT, NOA, and DXT. Colliers and Stantec are both entering the year fresh off transformative acquisitions, with strong tailwinds and reasonable valuations still. Finning International and North American Construction Group will benefit from improved earnings capacity relative to prior cycles. Rounding out our Top-5 is Dexterra Group, an under-the-radar support services company showing compounding potential.”