atility has been the name of the game recently, especially for growth stocks, but investors with enough fortitude should lean into that group, nonetheless. That’s the advice from Echelon Capital Markets, which on Tuesday released its Top Picks for the first quarter 2023, including a number of technology names in the mix.
The report describes how value stocks outperformed growth in 2022, particularly in the fourth quarter where the S&P 500 Growth Index gained just 1.1 per cent versus the S&P 500 Value Index which was up 12.9 per cent. For the year, the Value Index lost 7.4 per cent while the Growth Index was down a full 30.1 per cent.
But Echelon says it’s not going to follow the trend and shift towards value. Rather, its Top Picks are geared at catalyst-rich, small cap companies where growth is the main attraction, as that should lead to long-term outperformance within various market conditions.
“While the prospects of rising rates and the negative economic consequences remain clear headwinds, we look for investor focus to at some point return to high-quality, small cap names with specific catalysts or underlying secular growth trends in an environment where interest rates remain relatively attractive against a longer historical perspective,” the report says.
With that in mind, below are nine of Echelon’s picks, in no particular order, with all projected 12-month returns listed as of closing stock prices on December 31, 2022.
Stock: High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSXV:HITI)
Rating: Speculative Buy
Target Price: $12.00
Projected Return: 474 per cent
Echelon analyst Andrew Semple likes cannabis retailer High Tide’s strong balance sheet and the growth prospects of its discount club model. Semple said catalysts over the first quarter of the year include the company’s Q4 2022 results, possible M&A and new store openings.
Stock: Verano Holdings (Verano Holdings Stock Quote, Charts, News, Analysts, Financials CSE:VRNO)
Rating: Buy
Target Price: $22.00
Projected Return: 412 per cent
Semple also likes US-based cannabis name Verano, which navigated a challenging 2022 and is now well-positioned in some of top-performing pot markets in limited-license states in the US. Semple said Verano’s turning free cash flow positive during the current Q1 would be a catalyst for the stock.
Stock: Converge Technology Solutions (Converge Technology Stock Quote, Charts, News, Analysts, Financials TSX:CTS)
Rating: Speculative Buy
Target Price: $10.00
Projected Return: 118 per cent
Analyst Rob Goff said IT and cloud solutions provider Converge’s well-proven copy-paste-accrete formula for M&A should keep flowing through the new year. Goff is staying optimistic that strong customer demand as well as the company’s backlog drawdown should support double-digit organic growth, as well.
Stock: Quisitive Technology Solutions (Quisitive Stock Quote, Charts, News, Analysts, Financials TSXV:QUIS)
Rating: Speculative Buy
Target Price: $1.65
Projected Return: 114 per cent
For Quisitive, Goff said the commercialization of its payments platform PayiQ should be a catalyst into the new year for the IT services company, while re-engaging in inorganic growth would also be a boost.
Stock: Playmaker Capital (Playmaker Capital Stock Quote, Charts, News, Analysts, Financials TSXV:PMKR)
Rating: Speculative Buy
Target Price: $1.20
Projected Return: 150 per cent
Sports media brand company Playmaker also got the Top Pick nod from Goff, where the analyst sees the Q4 2022 results to be eventful, while looking ahead, revenue synergies should come from newly acquired affiliate Wedge.
Stock: Redishred Capital (Redishred Capital Stock Quote, Charts, News, Analysts, Financials TSXV:KUT)
Rating: Buy
Target Price: $8.25
Projected Return: 123 per cent
Echelon analyst Amr Ezzat likes Redishred, saying shares look “very attractive” at current levels, with plenty of room for growth, as the company should deliver strong earnings momentum with the potential for M&A this year.
Stock: Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY)
Rating: Buy
Target Price: $85.00
Projected Return: 29 per cent
Ezzat also likes business and technology services company Calian, which he expects to be more aggressive in capital allocation into M&A this year, while Ezzat also thinks the Street has consistently underestimated CGY’s value and the accretion potential of M&A for the company.
Stock: Diagnos Inc (Diagnos Stock Quote, Charts, News, Analysts, Financials TSXV:ADK)
Rating: Speculative Buy
Target Price: $1.00
Projected Return: 257 per cent
Analyst Stefan Quenneville chose healthcare AI platform Diagnos as a Top Pick, saying its partnership with Retinal Labs appears poised to win a Quebec government RFP for an AI-based teleophthalmology platform to screen diabetics province-wide for diabetic retinopathy, a potential catalyst for the stock.
Stock: Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT)
Rating: Buy
Target Price: $11.75
Projected Return: 86 per cent
Finally, Quenneville chose Quipt Home Medical, saying the company remains in the M&A sweet spot as an attractive target for any of a handful of larger durable medical equipment players. Catalysts for Quipt would include cost synergies achieved in relation to recent acquisition Great Elm Healthcare.