RBCRBC Dominion Securities analyst Geoffrey Kwan's Onex change came alongside the release of his 2023 outlook for Canadian diversified financial companies titled Kind of like finding sharks with laser beams attached to their heads. “Inflation remains elevated, interest rates continue to increase and economic data continue to weaken, yet equity markets have pulled back (S&P/TSX down 13 per cent, S&P500 down 20 per cent since their peaks),” he said. “Consequently, we think stock-picking in Diversified Financials might be almost as tricky as trying to find sharks with laser beams attached to their heads (or even ill-tempered mutated sea bass) and require a more dynamic approach. Defensive stocks significantly outperformed within our coverage in 2022 and we think it’s still prudent to remain defensive to start 2023, but market conditions could change warranting a pivot to more offensive stocks.”
He said Element Fleet Management Corp. is his top “high-conviction best idea” for the year, believing it stock can “outperform in both recession and recovery scenarios.”
“EFN is delivering accelerating EPS growth driven by new customer wins and cross-selling clients more fleet services, even despite OEM production issues,” said Mr. Kwan. “Originations should improve significantly in 2023 and this should further improve EPS. EFN shares did well in 2022, but we still view EFN as undervalued.”
He has an “outperform” rating and a Street-high $26 target for Element Fleet shares. The average is $22.08.
The analyst’s No. 2 best idea is TMX Group Ltd. with an “outperform” rating and $173 target, up from $160 and above the $153.86 average.
“We think the TMX offers an attractive mix of positive fundamentals; potential catalyst(s); solid defensive attributes; and attractive valuation,” he said.
Mr. Kwan’s No. 3 best idea is Brookfield Asset Management Ltd. with an “outperform” rating and US$35 target. The average is US$35.93.
“We like BAM reflecting positive fundamentals; potential catalyst(s); some defensive attributes (revenues are less dependent on public markets); and a reasonable valuation,” he said.
Mr. Kwan added: “Overall, our Top 3 best ideas are slightly less defensive than last quarter, but still offer a combination of growth, catalysts, defensive attributes and attractive valuations. If we see a market recovery in 2023, we recognize there may be other stocks that might generate higher total returns, but we believe our Top 3 best ideas offer an attractive mix of defensive and offensive attributes.”
The analyst also made these target revisions:
- AGF Management Ltd. ( “underperform”) to $7.50 from $6.50. Average: $7.93.
- Alaris Equity Partners Income Trust ( “sector perform”) to $19 from $18. Average: $20.96.
- Chesswood Group Ltd. ( “sector perform”) to $13 from $14. Average: $15.42.
- ECN Capital Corp. (“sector perform”) to $4 from $5. Average: $4.94.
- EQB Inc. ( “outperform”) to $72 from $70. Average: $80.38.
- First National Financial Corp. ( “sector perform”) to $39 from $40. Average: $35.67.
- IGM Financial Inc. ( “sector perform”) to $43 from $42. Average: $41.71.
- Sprott Inc. ( “sector perform”) to $55 from $54. Average: $50.67.