Investment banker Echelon Wealth Partners has chosen its Top Picks for the first quarter 2020, with a number of technology and life sciences names figuring into the mix.
Last Wednesday, Echelon Wealth analysts delivered their Q1 2020 list of favourites, saying that the success of its small-cap heavy Top Picks portfolio speaks for itself.
Over the fourth quarter of 2019, its Top Picks delivered a return of 19.8 per cent compared to the S&P/TSX Composite’s return of 3.2 per cent and the S&P/TSX Small Cap Index of 6.2 per cent. The long-term results look even more impressive, with its Top Picks returning 215.3 per cent and 337.4 per cent for the past three- and five-year periods respectively, which compares to returns of 22.1 per cent and 35.6 per cent over the same periods for the S&P/TSX Composite.
Of the 11 names to Echelon Wealth Partners’ Top Picks, four are in Tech and three are in the Life Sciences. Tech has two returning and two new names on the list and Life Sciences has two returning and one new name.
New to the list is precision measurements solutions company Photon Control (Photon Control Stock Quote. Chart, News TSX:PHO), which has exceptional risk-reward characteristics at its current levels according to analyst Amr Ezzat.
At the forefront, Ezzat says, is the fact that the company’s end-markets are now in full swing and the company still has $0.32 per share in cash on the balance sheet, with the analyst forecasting 24.2 per cent EBITDA growth in 2020 on 10.7 per cent top line growth.
“On the earnings power front, Q219’s EBITDA of $1.2M is the trough in our mind. We expect that in an upcycle, PHO’s quarterly EBITDA will surpass last year’s Q218 peak of $5.1M with minimal capital investment. That implies current valuation of 21.2x trough EBITDA and 5.0x peak EBITDA. We believe the Company’s products are still not fully entrenched within its customer base, providing for further growth beyond industry dynamics (and beyond its last peak!)” Ezzat wrote in a January 7 update to clients.
Ezzat is calling PHO a “Buy” with a $1.75 per share target price, which at press time represented a projected return of 34.6 per cent.
Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart, News TSX:PTG) is another new tech addition to the Top Picks, which has dealt with legacy and integration issues in the past but is now in a much better position to deliver the goods and is in a leadership position in the edge computing space, according to Echelon analyst Gianluca Tucci.
“We believe PTG is laser focused on shareholder value creation, with much of its legacy hindrances in the rear-view mirror and a much cleaned up balance sheet to begin 2020. Pivot continues to deliver robust Adj. EBITDA & cash-flow as it migrates to a more value- add revenue base with higher margins,” Tucci wrote on January 8.
The analyst is rating PTG a “Buy” with a $3.30 target, which represented at press time a return of 81 per cent.
Score Media and Gaming (Score Media and Gaming Stock Quote, Chart, News TSXV:SCR) had a fabulous 2019 with the launch of its sports betting app in New Jersey, reflected in the company’s share price which returned 24.1 per cent over the fourth quarter of last year after a 56.8-per-cent return over the Q3.
But more is in store for Score, says analyst Rob Goff, who kept his “Buy” rating but increased his target from $0.90 to $1.10, saying that growth in the New Jersey market represents a “strong wave” to showcase the potential of SCR’s betting plaform.
“We believe theScore’s focus on mobile users, its heavy in-game usage (~70 per cent), and its scale strengthen its partnership leverage in the betting ecosystem. The impressive success of Draft Kings and FanDuel speak to the value of established client lists and the ability to transfer existing/recent relationships into mobile betting where Draft Kings and FanDuel were put at roughly 44 per cent and 38 per cent, respectively, of the New Jersey sports betting markets in January 2019,” Goff wrote on January 9.
Goff’s new $1.10 target represented at press time a projected return of 32.5 per cent.
Goff is also picking AcuityAds Holdings (AcuityAds Holdings Stock Quote, Chart, News TSXV:AT), now for its sixth consecutive quarter on Echelon’s Top Picks list. The stock returned 19.1 per cent during a more difficult year in 2019 but the analyst predicts much better results in 2020, owing to the company’s strengthened product and services suite and expanding margins outlook.
Moreover, the analyst thinks AcuityAds represents a prime takeout target.
“We continue to see AT as an attractive acquisition candidate considering the strength of its product/service (measured by its ramping traction), its current valuation where an industry acquirer would look for significant technology savings where the acquirer moved onto the AT platform and in light of the pace of consolidation,” Goff wrote in a January 8 update to clients.
Goff has restated his “Speculative Buy” rating and $3.80 target for AT, representing at press time a projected return of 148.4 per cent.
The only cannabis play to make the list is returning candidate Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) which delivered an impressive 18.3 per cent over the last quarter at a time when the overall industry kept tanking (the Horizons Marijuana Life Sciences ETF) for example, was down 24 per cent for the quarter).
Analyst Matthew Pallotta says GTII checks all the right boxes for the current cannabis environment.
“In our view, GTI remains exceptionally well positioned and de-risked relative to the MSOs we have toured and/or reviewed. The Company has conservatively executed its expansion plans and capital management, helping to insulate itself from the pitfalls of the “land-grab” expansion strategy undertaken by many of its now over-extended peers. The Company has also managed to post some of, if not, the strongest EBITDA margins (19% for Q319) to date for any MSO with a comparably expansive multi-state platform. The strong portfolio of assets also provides excellent visibility towards growth in 2020 and thereafter,” wrote Pallotta in a January 6 update to clients.
The analyst has reiterated his “Buy” rating and $24.00 target, which at press represented a projected return of 99 per cent.
Drug developer Antibe Therapeutics (Antibe Therapeutics Stock Quote, Chart, News TSXV:ATE) is also a returning pick with still lots of upside after a positive 2019, says analyst Douglas Loe. All eyes are on the company’s ongoing Phase II clinical trial for its ATB-346, the company’s lead hydrogen sulfide-releasing naproxen analog.
Valuing ATE solely on ATB-346’s potential, Loe reiterated in a January 7 update his “Speculative Buy” rating and $1.40 target, which at press time translated to a projected return of 204 per cent.
Another drug developer, IMV Inc (IMV Inc Stock Quote, Chart, News TSX:IMV) got the nod from Loe for having substantial clinical activity and potential with its well-advanced Phase II DPX- Survivac-focused oncology trial.
“We believe that recent market focus on acquisition-based value creation within IMV’s clinical-stage oncology drug development universe (including Merck’s take-out of MA-based tyrosine kinase inhibitor developer Arqule for US$2.7B, and Sanofi’s comparably-valued take-out of interleukin-2 developer Synthorx for US$2.5B, to name two that transpired near end-of- FQ419) can drive imminent interest in IMV’s pipeline as well,” Loe writes in a January 15 update.
With his update, the analyst reiterated his “Speculative Buy” rating and $12.25 target price, which at press represented a projected return of 181 per cent.