Paradigm Capital reveals its top picks for Q2, 2018

Analysts from Paradigm Capital today revealed their top picks for the second quarter of 2018, and the innovation sectors were once again well represented.

The firm’s picks were segmented into five sections, including Metals, Mining and Agriculture, Gold and Precious Metals, Energy-Services, Energy-Oil and Gas and Growth. Included in the Growth segment are companies that will be familiar to readers of this website, including Baylin Technologies, Photon Control, Profound Medical Corp, and Shopify.

Analyst Daniel Kim has a “Buy” rating and a one-year price target of $5.00 on Baylin Technologies (Baylin Technologies Stock Quote, Chart, News: TSX:BYL), which closed Thursday at $3.84, implying a return of 30.2 per cent at the time of publication. He explained why he thinks the stock is still a bargain.

“BYL continues to focus on network densification driven by its small cell/DAS/BSA business (a TAM of US$8–US$40B),” the analyst says. The division’s growth should continue to accelerate with renewed product development (in its new Ottawa facility) and strong industry dynamics favouring the densification of networks. Recent reports from Rysavy Research suggest 1M small cells will be required to make 5G viable. We expect BYL will see upside this year from the Advantech acquisition (we have not accounted for any revenue or cost synergies), as well as continued growth in all other divisions. The stock continues to be inexpensive, trading 4.3x 2018e EV/EBITDA versus peers at 11.1x.

Kim has a “Buy” rating and a $2.60 one-year price target on Photon Control (Photon Control Stock Quote, Chart, News: TSXV:PHO) which closed Thursday at $1.79, implying a return of 45.3 per cent at the time of publication. He explained the upside of the stock.

“PHO’s reconstituted board and management team have addressed all of the company’s previous shortcomings and have allowed it to steal market share from competitors and it is on a path to rapid growth,” he says. “We expect the company will continue to grow its footprint with existing customers, deliver new socket wins with current and new OEM customers, deepen penetration into new verticals and pursue greenfield market opportunities (OLED and positioning sensors). PHO’s impressive backlog growth and increased capacity should also help drive sales expansion going forward. Our estimates remain conservative and we believe there is great upside to the story based on the catalysts above.”

Analyst Rahul Sarugaser has a “Buy” rating and a one-year price target of $3.00 on Profound Medical Corp. (Profound Medical Stock Quote, Chart, News: TSX:PRN) which closed Thursday at $0.97, implying a return of 209.3 per cent at the time of publication. Sarugaser says there are catalysts that can drive the stock higher.

“Having just completed a $34.5M financing, PRN is now significantly de-risked and well positioned to execute on its operational milestones: 1) complete the TACT trial; 2) complete its FDA 510(k) submission; and 3) begin marketing TULSAPRO in the U.S. and Europe. First interim data from the TACT trial will be presented on May 21 at the American Urological Association Conference. We remain confident that PRN should see greatly improved safety outcomes, which should be significantly accretive to the company’s value,” the analyst says.

Analyst Kevin Krishnaratne’s top pick for the second quarter is Shopify (Shopify Stock Quote, Chart, News: TSX:SHOP). He has a “Buy” rating and a one-year price target of (US) $160.00 on the stock, which closed Thursday at $124.59, implying a return of 28.4 per cent at the time of publication. Krishnaratne thinks Ottawa-based Shopify, which was founded in 2004, is just getting going.

“Shopify is in the very early stages of disrupting retail, with ~609K customers on its platform, revenue growing ~75% and gross profits up ~80%,” the analyst explained. “Trends should continue to benefit from recent initiatives, such as Shipping, International Payments and new channel launches. Our view is that estimates are very conservative, with multiple ways for Shopify to beat and raise guidance. In turn, our current US$160.00 target, which is based on 10.3x 2019e EV/Sales, likely also has room for upward revisions on the back of earnings events and new product releases.”