IA Capital Equity analysts at iA Capital Markets updated their “2022 Top Picks” list on Monday.
It now consists of 11 stocks across the firm’s growing coverage universe.
“Recall that in 2021 our Top Picks delivered a return of over 34 per cent, beating the TSX Composite Index at just under 22 per cent,” said Neil Linsdell, the firm’s research head. “With the refreshed list that we published on January 10, 2022, we have managed to generate a return of just over 10 per cent year-to-date versus the TSX Composite at just under 4 per cent over the same period. With the extremely dynamic environment so far in 2022 and some changes in our analyst roster, we are locking in those gains from Q1 and providing an updated list to start Q2.”
Diversified Industries analyst Matthew Weekes added Freehold Royalties Ltd. to the list, replacing Hydro One Ltd.
“We started off the year with Hydro One as a top pick, focusing on risk-adjusted returns and relative value within the infrastructure space,” he said. “We believe that Hydro One represented a stable pick with relative value upside compared to regulated peers when considering the Company’s strong balance sheet, pure-play electric transmission and distribution business, and mid-single-digit run-rate growth profile. Utilities on average have performed essentially in line with the TSX year-to-date in what we would consider a mixed macro backdrop, with the outlook for rising interest rates, which is typically a headwind for sector valuations, competing with the stability and constructive growth outlook for these companies as providers of essential domestic energy infrastructure. The dynamic of higher interest rates and the compression of relative yield spreads will likely continue going forward, keeping P/E valuations in check. We are electing to revise our top pick in Energy, choosing instead to go with a name in the oil and gas Royalty space amidst the backdrop of high commodity prices, improving views on conventional energy development in North America, and the ability of low-cost businesses to provide natural protection against inflation.”
He has a “strong buy” rating and $19 target for Freehold shares, exceeding the $18.39. average on the Street.
“Within the sector, we believe FRU offers compelling relative valuation to peers, with the lowest leverage in the sector and unique U.S. exposure, which provide an additional layer of diversification and business sustainability,” he said. “Based on our commodity price sensitivity analysis, FRU’s debt will be fully repaid by mid-year at current commodity prices, assuming no acquisitions. However, we believe that FRU will continue to pursue acquisitions, focusing on US acreage and taking a patient approach that seeks reasonable valuations while near-term organic production growth is generated from existing acreage. Finally, our sensitivity analysis indicates that FRU’s dividend, which is currently yielding more than 6 per cent, is sustainable at low oil prices.”
Mr. Weekes’s other pick for the list continues to be Mullen Group Ltd. with a “strong buy” and $16.50 target. The average is $14.86.
With the introduction of the real estate sector to the list for this quarter, analyst Johann Rodrigues added InterRent REIT . He has a “buy” rating and $20 target, exceeding the $19.64 average.
“With best-in-class growth, an aligned management team that is among the best operators in Canada, and a portfolio heavily geared towards the hottest rental markets in Canada (85 per cent in the GTA/Ottawa/Montreal/Vancouver), we think InterRent is poised to enjoy a strong rest of 2022 and thus are making it our Top Pick,” he said.
The firm’s other returning picks include:
- Brookfield Infrastructure Partners L.P. with a “strong buy” rating and US$72 target. The average on the Street is US$67.92.
- CareRx Corp. with a “buy” rating and $10 target. Average: $9.19.
- Copper Mountain Mining Corp. with a “strong buy” rating and $6.30 target. Average: $5.21.
- GDI Integrated Facility Services Inc. with a “buy” rating and $72.50 target. Average: $68.29.
- Premium Brands Holdings Corp. with a “buy” rating and $145 target. Average: $145.30.
- Quipt Home Medical Corp. (QIPT-X) with a “buy” rating and $5.60 target. Average: $12.59.
- TransAlta Corp. with a “strong buy” and $16.50 target. Average: $16.09.
- Wesdome Gold Mines Ltd. with a “buy” rating and $20 target. Average: $16.53.