Stifel analyst James Hodgins thinks “it’s time to buy Canadian small caps.”
“After underperforming for the better part of the past decade, Canadian small cap equities are literally begging to be bought,” he said. “The value is there, the cycle returns are there and the seasonality is now here. In addition to extreme value and seasonality, small cap equities historically also benefit from the yield curve re-steepening, which it inevitably will do.
“While we realize many Small Cap names are bearing the brunt of tax-loss selling, that peak selling pressure is due to abate within 2-3 weeks, thereby giving investors an opportunity to pick up great small cap companies at bargain-basement prices.”
In a research report released Tuesday, Mr. Hodgins said small caps have never been cheaper relative to their large peers, “making them a great value call.”
“Small cap equities are priced toward the bottom end of range and trading below levels when rates were as high as today’s! Small cap’s relative performance is highly correlated with the yield curve, and with rates cuts expected soon, if current resteepening is the beginning of an emerging trend, the style could be primed to gain momentum as seen historically,” he said.
“Finally, as we enter the end of peak tax-loss selling period, which also happens to be the seasonally strong performance period for small caps, We expect small caps to outperform large caps once again from December to February. Next two weeks also opens up a buying opportunity of the tax-loss sell candidates.”
Mr. Hodgins recommended the firm’s list of top small-cap ideas, which all possess “buy” recommendations. They are:
- Advantage Energy Ltd. with a $14.50 target. The average on the Street is $12.69.
- Aya Gold & Silver Inc. with a $15 target. Average: $13.75.
- Coveo Solutions Inc. with a $14 target. Average: $12.95.
- Dentalcorp Holdings Ltd. with a $11.50 target. Average: $10.28.
- Dundee Precious Metals Inc. with a $12.25 target. Average: $12.81.
- Jamieson Wellness Inc. with a $45 target. Average: $38.90.
- Lithium Americas (Argentina) Corp. with a US$18.50 target. Average: US$19.94.
- Mattr Ltd. with a $26 target. Average: $21.56.
- Pet Valu Holdings Ltd. with a $33 target. Average: $36.33.
- Savaria Corp. with a $25 target. Average: $19.29.
- Tamarack Valley Energy Ltd. with a $6.25 target. Average: $6.08.
- Taseko Mines Ltd. with a $3.60 target. Average: $2.98.
- Trican Well Service Ltd. with a $6.50 target. Average: $6.
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