Investors starting out the new year with trepidation have a wealth of downtrodden stocks to choose from, but where are the diamonds in the rough? Portfolio manager John Zechner says one of them is Canadian space tech stock MDA Ltd (MDA Ltd Stock Quote, Charts, News, Analysts, Financials TSX:MDA), which lost a third of its value over the course of 2022 but has sector tailwinds aplenty, according to Zechner.
“I like it because it’s almost like the arms dealer for the space race. [MDA makes] components for low Earth orbit satellites, and we know there’s such demand for the data they produce, whether it’s for agriculture or defence or everything else. We give them about 25 per cent growth over the next four years,” said Zechner, president of J. Zechner Associates, who spoke on BNN Bloomberg on Friday where he nominated MDA as one of his Top Picks for the next 12 months.
MDA is the former MacDonald Dettwiler, which was bought by Maxar in the US and then sold off again in 2020 to Canadian investors Northern Private Capital. MDA had its public listing on the TSX in early 2021, but the stock is down by about half since then and is currently trading around the $6.00 mark.
But Zechner said investors will benefit from owning MDA, if not from share price appreciation then from a buyout, pointing to the recent acquisition of Maxar for US$6.4 billion, representing about a 130 per cent premium to Maxar’s share price.
“MDA has been ignored and under-followed and it’s been a real dog down here around $6, [but] I love the valuation,” Zechner said. “We had Maxar in the portfolio and same thing: it acted poorly and then it got bought out two weeks ago.”
“[Maxar was bought] by private equity, which tells me these things are in demand. So, just buy it and stick with it and if it’s not going to grow, somebody’s going to take a shot at it because they’re good assets and they’re a growth. The space race continues,” he said.
MDA last reported its earnings in November where the company’s third quarter 2022 saw revenue up 55 per cent year-over-year to $172.0 million and adjusted EBITDA up 22 per cent to $38.8 million. By segment, MDA’s Geointelligence business rose from $40.7 million to $45.5 million for the Q3, its Robotics & Space Operations business went from $33.1 million to $54.6 million and its Satellite Systems business went from $37.5 million to $71.9 million.