Tech, ESG and cannabis stocks are all to be favoured this year according to Haywood Capital Markets which just issued its Top Picks for the year ahead.
In a report to clients on Tuesday, Haywood analysts Neal Gilmer and Colin Healey singled out a number of tech and special situations names including healthcare company WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) and US cannabis name Curaleaf (Curaleaf Stock Quote, Chart, News, Analysts, Financials CSE:CURA).
Remain nimble and expect anything —that’s the advice from investment bankers Haywood with regards to 2021, where the global pandemic has yet to be tamed and many market indices are touching all-time highs. A few trends should be favoured, as well, including precious metals which are set to take off and ESG investing which should maintain its momentum going into 2021.
But Haywood cautioned that picking your ponies will also be key. “We believe that greater equity market volatility in the coming quarters should increase the payoff from bottom-up fundamental analysis in stock selection as the results of passive investment strategies deteriorate,” Haywood wrote.
The analysts offered three names in the environmental, social and corporate governance category where clean tech companies shine. The sector did exceptionally well over the second half of 2020 and so valuations for many may appear inflated, Haywood said, but with governments worldwide looking to ‘build it back better’ with their stimulus spending, stocks in the ESG space will nonetheless “be poised for outsized returns over the next 12 months as ESG investing becomes a (if not ‘THE’) major investing criteria for many funds.”
On that front, Haywood picked Greenlane Renewables (Greenlane Renewables Stock Quote, Chart, News, Analysts, Financials TSXV:GRN), Exro Technologies (Exro Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:EXRO) and H2O Innovation (H2O Innovation Stock Quote, Chart, News, Analysts, Financials TSXV:HEO) as its Top Picks.
Greenlane, which designs and installs biogas upgrading systems to turn low-value biogas into a higher-value renewable natural gas product, has been riding momentum and capital flow into the renewable natural gas (RNG) industry and ended 2020 as one of the best-performing stocks. Haywood said Greenlane should do well in 2021 as new contracts roll in and the stock moves onto the TSX main board during the Q1. Haywood has a “Buy” rating on GRN with a target of $3.00, which at the time of publication represented a projected one-year return of 30 per cent.
Exro has shot up the charts in its short lifespan but investors should expect more upside, Haywood said, as the mobility inverter company and its patented Coil Drive Technology find their place in the growing electric vehicle market. Haywood said Exro also plans to uplist this year, going to the TSX senior board in the first half of the year and the NASDAQ in H2/21. Exro recently conducted lab simulations that validate its Battery Control System, which was a big deal, said Haywood, after years of R&D. For Exro, Haywood has a “Buy” rating and $8.00 target, which at press time represented a return of 95 per cent.
And water treatment solutions business H2O Innovation also got the nod, with Haywood saying the company has a visible trajectory to both organic and acquisitive growth, increasing recurring revenue and improving profitability. Haywood also noted H2O’s “clear set of values and culture” that are likely to position it as an ESG champion in relation not only to its business but its ability to create a positive work environment for employees, its humanitarian aid work and environmental stewardship. Moreover, the shares remain at attractive levels, Haywood said, and strong financial performance and improving EBITDA margins over the next few quarters will lead to share price appreciation. “Buy” with a $2.50 target, which represented a projected return of 11 per cent.
Cannabis has been off to the races over the past few months as investors respond to Democrat wins in November and again in January which could push legislation forward at the federal level in the US. The rally has swept up Canadian cannabis stocks as well, but Haywood gives its preference to US operators, saying that while the Canadian pot market should continue to grow in 2021, the entry of Canadian LPs into the larger US market is still uncertain.
From the US crop, Curaleaf is best positioned to catch the green wave, according to Gilmer, who said the company continues to be the US leader in terms of breadth of operations and position for future growth and thus best-positioned to benefit from potential federal reform. Curaleaf’s balance sheet remains strong and its management team has shown their skills through accretive M&A while keeping CURA well-capitalized for future opportunities.
“We believe Curaleaf has demonstrated an ability to effectively grow both organically and through strategic acquisitions,” Gilmer wrote. “The strength of the management team and balance sheet accompanies with the size of operations should return meaningful growth and leverage without the need of further legislative reform. Further reform at either the federal or individual state levels should only accelerate Curaleaf’s growth trajectory.”
Gilmer has maintained his “Buy” rating and $20.00 target, which at the time of publication represented a projected return of 15 per cent.
Finally, Haywood pointed out that Canadian Tech stocks did very well in recent years, with the TSX InfoTech index adding over 47 per cent in the past 12 months and over 140 per cent on a two-year basis. Tech was at the forefront of people’s minds during the pandemic-enforced work-from-home days of 2020, but Haywood said the tech space should continue to outperform over the long term, arguing that the accelerated adoption of technology witnessed in 2020 “will remain with us as a permanent shift in the demand-curve has occurred.”
WELL Health was Haywood’s best performer in Haywood’s technology coverage list, up 310 per cent over the past 12 months and up 1,698 per cent over the past 24 months. But 2021 is setting up to be another big year for the company, according to Healey, who labelled WELL a Top Pick.
WELL, which has bricks and mortar clinics, an EMR business, a telehealth business, a healthcare app platform and cybersecurity assets, should see strong revenue growth in 2021, Healey said, with the analyst calling for a 109-per-cent topline increase this year while the company maintains its acquisitive pace with an expected six new clinics by the end of the first half of the year.
“We recommend investors position themselves now for exposure to what we expect to be a very busy 2021 from an M&A perspective. WELL continues to enjoy strong momentum spawned by market recognition of its strategy and execution as it builds out its technology platform organically and through complementary strategic acquisitions,” Healey wrote. “We continue to like WELL, underpinned by strong management and evolving technical offering with further expansion into the US a potentially significant catalyst.”
With the report, Healey has maintained his “Buy” rating and $10.00 target, which at press time represented a projected 12-month return of 31 per cent.
Disclaimer: Nick Waddell and Jayson MacLean own shares in WELL Health and the company is an annual sponsor of Cantech Letter.
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