Looking for stock picks here in the difficult environment that is October 2019? GMP Securities has released its list of Best Ideas for the next 12 months, featuring a number of tech and healthcare stocks in the mix.
Analysts at GMP say that despite the plethora of concerning current events —slowing global growth, trade wars with China, stalling productivity growth, Brexit, etc.— there are good reasons to ditch the worry.
“While the bond yield decline has hardly gone unnoticed, the extent to which this can and will offset the impact of all the concerns above by stimulating growth and extending the cycle is probably being underestimated by investors, which is why we remain constructive on the market outlook through 2020. Equity markets should climb a wall of worry,” said GMP analysts in the report.
GMP Securities Stock Picks, October 2019
With that positive note in mind, here are GMP’s Best Ideas in tech and healthcare.
Canadian cannabis play Aphria (Aphria Stock Quote, Chart, News TSX:APHA) kicks off the list, with analyst Justin Keywood saying he recently spoke with government contacts at the distribution level who had very positive feedback about the company, relating that the quality of Aphria’s products was among the best for Canadian licensed producers and that the company had overall improved greatly on the operational side.
“We see this type of feedback as critical in driving our conviction on Aphria in an industry undergoing rapid change, where quality of product and good relationships are important in achieving high growth,” says Keywood. “Aphria has a solid balance sheet to support expansion activities as well with $571 million in cash, reducing funding risk. These factors, combined with one of the lowest valuations among CDN senior LPs, show a compelling investment case and we add APHA to our Best Ideas list.”
Keywood rates APHA a “Buy” with a target price of $14.00, representing a projected 12-month return of 103.5 per cent at the time of publication.
ATS Automation (TSX:ATA)
Up next is manufacturing automation systems company ATS Automation Tooling Systems (ATS Automation Tooling Systems Stock Quote, Chart TSX:ATA), which Keywood thinks is well-positioned to benefit from a strong secular trend in automation, including above-average growth in the healthcare and EV segments, which currently account for about 75 per cent of ATS’ sales.
Keywood believes that continued misconceptions surround ATS, including the idea that its customer patterns are highly cyclical and subject to quick change — a view that Keywood thinks has recently affected the stock price. The analyst counters the sentiment by saying that although ATS’s project business has potential quarter variability on large orders, it has much greater exposure today to valuable areas than it did in the past.
Further, Keywood says that ATS’s acquisition of Comecer in February of this year was a winner.
“We see the transaction as expanding ATS’ valuable healthcare offering, which has favourable dynamics that warrants a premium valuation. The acquisition follows three other tuck-in deals for ~C$40 million combined. We see M&A as being valuable in expanding ATS’ advantage in a robust automation industry and a balance sheet with $650 million+ capacity supports more deals,” writes Keywood.
As one of his top stocks picks for October, 2019, the analyst rates ATS a “Buy” with a $27.00 target, representing a projected return of 49 per cent at the time of publication.
Curaleaf Holdings (CSE:CURA)
US cannabis company Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA) continues to be one of analyst Robert Fagan’s Best Ideas for the year. Along with its currently attractive valuation (Curaleaf is trading at at an “unfair” discount to its peers, Fagan says), industry-leading platform and accretive merger with Select as of May of this year, CURA released its second quarter 2019 earnings in late August, which saw the company flip to profitability for the first time.
That marked a milestone for the company, says Fagan.
“The positive EBITDA achievement was mainly driven by operating leverage, which we expect to continue with no major expense base additions required to handle future volume increases. In our view, this suggests CURA’s platform has reached an inflection point for OPEX, setting the stage for future margin growth,” Fagan writes.
The analyst rates CURA a “Buy” with a target price of $24.00, representing a projected return of 234.7 per cent at the time of publication.
Green Thumb Industries (CSE:GTII)
A third pot company liked by GMP is Chicago-based Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII), which judging by its current share price is widely unappreciated, according to Fagan, who calls GTII a best-in-class operator and points to the company’s recent quarterly result for proof.
“GTII reported impressive Q2/19 results, beating estimates on the top and bottom line with its strongest quarterly sales growth on record, and its first profitable EBITDA quarter. The strong profitability was driven by the highest gross margin in GTII’s history as well as good cost control with SG&A increasing at half the pace of revenues. This resulted in GTII generating Q2 EBITDA margin of ~13 per cent, the highest amongst all MSO peers,” writes Fagan.
Fagan is maintaining his “Buy” rating and C $32.00 target price which represented a projected return of 196 per cent at the time of publication.
HLS Therapeutics (TSX:HLS)
Specialty pharma company HLS Therapeutics (HLS Therapeutics Stock Quote, Chart, News TSX:HLS) also gets the nod from GMP, with Keywood saying that the recent pressure on HLS shares makes for a unique buying opportunity ahead of upcoming catalysts for the stock.
HLS’s share price has declined about 17 per cent since a US FDA advisory committee meeting (AdCom) was announced on August 8 related to the Vascepa REDUCE-IT trial and label expansion (HLS has in-licensed the exclusive rights to Vascepa for the Canadian market). But Keywood says that he expects a positive outcome from the AdCom, to be held on November 14.
“We believe that the AdCom will be positive for Vascepa and HLS as a result but also see a relatively small amount of value for the drug priced in currently. We estimate that Vascepa is worth $4/share to HLS for only the current U.S. indication and valued up to $25/share on a broader label, incremental to a $10.00 base business of primarily Clozaril. This illustrates much greater upside than downside risk for HLS at ~$15/share,” writes Keywood.
The analyst rates HLS a “Buy” with a $22.00 target which represents a projected return of 48 per cent.
Finally, analyst Deepak Kaushal likes supply chain management software company Tecsys (Tecsys Stock Quote, Chart, News TSX:TCS) and says that the company is approaching an inflection point as it transitions to a cloud and SaaS model and crosses the $100-million revenue mark.
“In our view, this will enable continuous organic innovation, segment and geographic expansion, acquisitions, and operating leverage. For investors, we believe this will deliver sustainable growth, margin expansion and potential for valuation multiple expansion to a level comparable with other high-growth SaaS stocks,” Kaushal writes.
“We expect multiple benefits in the transition to SaaS, including the ability to upsell customers on new products and continuous innovation, more visibility and steadier growth, and more consistent operating leverage and cash flow,” he says.
Kaushal rates TCS a “Buy” with a $20.00 target, representing a projected return of 32.2 per cent at the time of publication.
File Under: Stock Picks October 2019, Stock Picks October 2019 GMP,