GMP Securities has announced its “Best Ideas” picks for the next 12 months, with a number of technology and healthcare stocks making the grade of top picks.
Published on a quarterly basis, GMP’s Best Ideas covers stocks they see providing at least a 20-per cent return. The investment banker notes that after outperforming over the second quarter of 2018, Canadian markets were down compared to the US in Q3, with the S&P/TSX falling 1.3 per cent versus a 7.2 increase for the S&P 500.
First up in tech and healthcare is ATS Automation Tooling Systems (ATS Automation Tooling Systems Stock Quote, Chart: TSX:ATA), which saw solid gains of 90 per cent over the past year but is still reasonably priced, says analyst Justin Keywood, who puts a price target of $29.00 on ATA, representing a projected 12-month return of 21 per cent at the time of publication.
“We believe that this strong stock run is not over as elevated organic growth continues, margin expansion initiatives progress and strategic acquisitions loom,” says Keywood. “We continue to hear strong prospects for automation in the healthcare and EV industries as well, consistent with ATS’ views and recent results.”
Keywood also sees value in specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Chart: TSXV:HLS) which recently completed a REDUCE-IT trial for FDA-approved cardiovascular drug Vascepa by meeting the primary endpoint of demonstrating a 25 per cent relative risk reduction of CV events.
“HLS owns the Canadian rights [to Vascepa], which we value to be worth an extra $4 to $25/share, and our recent discussion with a CV pharmacology expert points to the higher end of this range. The statistical significance of the trial, health of the patient population and a lack of comparable other treatments sets up for Vascepa to be a blockbuster drug,” says Keywood.
The analyst has upped his target for HLS to $21.00, representing a projected return of 52 per cent.
Cannabis company CannTrust Holdings (CannTrust Holdings Stock Quote, Chart: TSX:TRST) gets the nod from analyst Martin Landry who says that even though the stock has performed well over the last three months, there’s further upside ahead. Landry rates TRST a Buy with a target price of $15.50, representing a projected return of 24 per cent.
“CannTrust is expanding its production capacity to 100 tonnes while keeping an impressive discipline on its SG&A spend at a time when the operating expenses of its peers have ballooned. This combined with the potential for a US listing, have led us to lower our discount rate by 100bps to reflect the expected lower cost of equity or debt capital,” says Landry.
Landry also likes Moncton, New Brunswick’s Organigram Holdings (Organigram Holdings Stock Quote, Chart TSXV:OGI), which he sees to be trading at a significant discount to its peers while at the same time it’s likely to achieve positive EBITDA faster than most other licensed producers (LPs) due to its high yields and low cost structure.
“The valuation discrepancy between smaller LPs (market cap sub $2 billion) and the big five has accelerated in recent months,” says Landry. “The five largest LPs trade at a valuation multiple 5x higher than OGI on an 2020 EV/EBITDA basis, vs ~2x just three months ago. This is partly due to US-based retail investors having a better awareness of the big five, something which could change should OGI decide to list in the US.”
Landry gives a 12-month target of $8.50 for OGI, representing a projected return of 23 per cent.
GMP’s Deepak Kaushal says Drone Delivery Canada (Drone Delivery Canada Stock Quote, Chart: TSXV:FLT) could be the first licensed operator for drone delivery in Canada, building a high growth, high margin business with attractive barriers to entry and IP essential to the industry.
“In our view, DDC is executing exceptionally well and has matured their technology, systems and process to a level that can achieve reliable and repeatable drone operations. While development is far from complete, we believe this significantly reduces early-stage technical risk,” Kaushal says.
The analyst has set a target of $2.55, representing a projected return of 76 per cent.
Kaushal also favours crytocurrency merchant bank Galaxy Digital (Galaxy Digital Stock Quote, Chart: TSXV:GLXY), which the analyst sees as the best public market exposure to cryptocurrencies out there.
“We spoke to 20 senior executives at cryptocurrency investment funds, traders, advisors, exchanges and blockchain software companies. Galaxy is widely recognized as a leading brand with strong talent, access to the best deal flow, and a key contributor to the inevitable institutionalization of the sector,” he says.
Kaushal gives Galaxy a $7.10 target price, representing a projected return of 193 per cent.
Finally, media and entertainment company Stingray Digital Group (Stingray Digital Group Stock Quote, Chart TSX:RAY.A) is another GMP Best Idea, says Kaushai, calling Stingray a successful growth-by-acquisition story that’s likely to sustain high grown, profitability and shareholder returns both via acquisitions and organic growth.
“Since 2007, Stingray has made 36 acquisitions and grown revenue 33 per cent annually with an average adj. FCF ROIC of 20 per cent/yr. With the acquisition of [Newfoundland Capital Corporation], Stingray said it can increase its annual M&A target to $10 million EBITDA for $50 million, up from $5 million for $25 million previously. We estimate adding $7 million in EBITDA annually is achievable and estimate this could add $3.82/sh in upside,” says Kaushai.
The analyst sets a 12-month target of $14.50 for Stingray, predicting a return of 65 per cent at the time of publication.