Paradigm Capital today released its top picks for the fourth quarter of 2016 and the innovation sectors figure prominently in the firm’s best ideas.
Among Paradigm’s favourites are Baylin Technologies (TSX:BYL), Firan Technology Group (TSX:FTG), ProMetic Life Sciences (TSX:PLI) and Shopify (TSX:SH, Nasdaq:SHOP).
Analyst Daniel Kim says the underperforming Baylin Technologies may have turned a corner.
“Q2 was a massive beat as BYL continues to capitalize on growth opportunities, with Q3 likely another strong quarter,” says the analyst. “The Samsung Note 7 recall, while posing headline risk, has not presented a business risk to BYL. Rumours of an early Galaxy S8 release could provide an incremental boost to Q4 revenue. In the meantime, volumes with Indian and Chinese mobile OEMs is growing.”
Kim has a “Buy” rating and a $5.00 target on Baylin, which closed Friday at $2.00.
Kim’s other top pick for the fourth quarter is Firan Technology Group. He says the company has solid macro tailwinds.
“Chinese aircraft demand forecast raised recently to 6,810 new airplanes over next 20 years (representing onesixth of total global demand),” explains the analyst. “FTG is massively leveraged through Boeing and Airbus (indirectly through LMT and COL) and COMAC (directly, with 10x higher content per aircraft). The market is failing to award FTG for either leverage play, currently trading at 4.9x FY17e EV/EBITDA versus PCB peers at 6.3x and Aerospace peers at 10.5x.”
Kim has a “Buy” rating and a one-year price target of $4.75 on Firan, which closed Friday at $2.76.
Paradigm analyst Christopher Lam’s top pick for the fourth quarter is ProMetic Life Sciences. He says near term catalysts could spark the stock.
“ProMetic is expected to complete its plasminogen Phase III trial in Q4. We consider this trial to be low risk and positive results would be a material catalyst,” says the analyst, adding: “We are also expecting Phase II data from the Idiopathic Pulmonary Fibrosis and Alstrom Syndrome trials in Q4. Positive data from either trial would be a significant derisking event ahead of pivotal trials.”
Lam has a “Buy” rating and a one-year price target of $5.50 on ProMetic, which closed Friday at $2.92.
Analyst Kevin Krishnaratne’s top pick is Ottawa’s dual-listed Shopify. The analyst thinks the internationally known company is still in the early innings of its journey.
“Shopify is in the very early stages of disrupting retail, with only 300K customers on its platform, revenue growing ~100%, gross profits up ~80% and subscriber gains at ~70%. Trends should continue to benefit from recent initiatives such as Shipping, International Payments, and new channel launches,” he says. “Our view is that estimates are very conservative, with multiple ways for Shopify to beat and raise guidance. In turn, our current US$42.00 target, which is based on 6.5x EV/Sales on 2017 estimates, likely also has room for upward revisions on the back of earnings events and new product releases.”
Krishnaratne’s has a “Buy” rating and a (U.S.) $42.00 price target on Shopify, which closed on the Nasdaq Friday at $42.92.