Analysts pick their top Canadian stocks for 2024

2023 was a comeback year for the markets, with the S&P 500 on pace for a 23 per cent gain as the final trading day of the year marches to a close on this Friday, December 29th.

So what’s on tap for 2024? There’s an air of cautious optimism, what with the almost certainty of rate cuts in both Canada and the U.S. But for many pros, that sentiment is baked in with the idea that the markets might currently be a little toppy.

At Cantech Letter we carry research from dozens of investment banks and many recently established their top picks for 2024. We run down some of the most notable here.

Analysts from Desjardins December 19 released a report featuring Top Picks for 2024 in a variety of sectors. A space that puzzled many in 2023, telecom, will see a path to more clarity in 2024 says analyst Jerome Dubreuil, who has chosen Rogers Communications (Rogers Communications Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B) as his top telco pick.

The analyst says there will be less uncertainty for investors in the months to come.

“It has been an eventful 2H23 for Canadian telecoms with CRTC decisions on MVNO rates and temporary FTTH access, as well as a dynamic Black Friday,” Dubreuil wrote. “While the full impact of these events may not yet be in companies’ results or retail telecom market dynamics, at least we now have a much better idea of what the telecom sector is working with. We also expect EBITDA growth to be supported by continual cost consciousness in the sector.”

With the report, the analyst reiterated his “Buy-AA” (The AA denotes Above-average risk) rating but raised his price target on RCI.B from $70.50 to $76.00.

2024 will likely be a year that the markets normalize and a reversion to the mean could spell some big moves for small cap technology stocks.

That’s the high-level view from ATB Capital analyst Martin Toner, who in a research update to clients November 30, outlined his three top picks for 2024.

Toner assessed where he feels the markets are right now.

“Markets and growth stock valuations normalized in 2023 after last year’s overcorrection,” the analyst said. “Moving into 2024, interest rates remain high, meaning alternatives to growth assets still exist. Despite these headwinds, the multiples for high-quality growth assets are buoyant as year-end looms; Shopify, for example, trades at ~22x NTMe P/GP. Multiples have improved, but remain depressed across much of small-cap tech. The macroeconomic conditions and weak capital-raising market have had an impact on fundamentals, and growth rates have compressed significantly. In general, the secular growth stories and high-quality business models in software endure. A number of names in our coverage universe look attractive when comparing the medium-term growth outlook to valuation.”

Toner’s three top picks for 2024 are Lightspeed (Lightspeed Stock Quote, Chart, News, Analysts, Financials TSX:LSPD), Real Matters (Real Matters Stock Quote, Chart, News, Analysts, Financials TSX:REAL) and Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSX:BLN)

Back at Desjardins, on December 14, analysts Frederic Tremblay, Gary Ho, Chi Le and Liam Bergevin released their top picks for 2024 in Diversified Industries.

“As we look to 2024, we believe that the recent widening of the small caps’ valuation discount, the likelihood of interest rate cuts and M&A/takeout activity provide a constructive backdrop for small caps, especially those with resilient businesses, solid cash flow generation and alignment with global trends,” the analysts argued. “Our top picks for 2024 are Ag Growth (AFN, TSX, Buy–Above-average Risk, C$82.00 target), Brookfield Business Partners (BBU/BBU.UN, NYSE/TSX, Buy–Above-average Risk, US$29.00 target), Savaria (SIS, TSX, Buy–Above-average Risk, C$20.50 target) and Lithium Ionic (LTH, TSX-V, Buy–Speculative, C$4.50 target (was C$5.25).

At Echelon Capital Markets, analyst Stefan Quenneville still thinks highly of Diagnos (Diagnos Stock Quote, Chart, News, Analysts, Financials TSXV:ADK), a Montreal-based commercial-stage artificial intelligence (AI) company addressing the critical problem of diabetic retinopathy, the leading cause of blindnessa sentiment. The analyst expressed bullish sentiment in an update to clients October 3 and reiterated again November 29.

“DIAGNOS Inc. remains a Top Pick with the expectation that the August 2021 MoU with EssilorLuxottica, the world’s largest eye care company, will be converted to a contract to commercialize the AI-based FLAIRE platform to screen for Diabetic Retinopathy (DR), the leading cause of adult blindness, in up to 8,000-10,000 of its worldwide locations,” the analyst said. “Often undetected due to screening bottlenecks, DR progresses asymptomatically until irreversible vision loss occurs. ADK’s equipment-agnostic platform seamlessly integrates with existing optometry cameras and workflows to enable early detection, grading, and monitoring of DR, which can be difficult and time-consuming using current manual approaches.”

Finally, at RBC, analyst Geoffrey Kwan named Element Fleet Management (Element Fleet Management Stock Quote, Chart, News, Analysts, Financials TSX:EFN) to his “high conviction best idea” list.

In an update to clients in late October, Kwan explained the reasoning behind his bullish take on the fleet management stock.

“Element Fleet trades at just 12.9 times 2024 estimated P/E [price to earnings] and 10-per-cent 2024 estimated FCF [free cash flow] yield, which we think is undervalued given LTM [last 12-month] EPS and FCF/share growth of 26 per cent and 28 per cent,” the analyst argued. “We think Element can deliver a more than 16-per-cent EPS CAGR [compound annual growth rate] over the next five-years, helped by factors like significant growth opportunities and substantially lower credit and other risks vs. other financials. We think the UAW strike impact as likely immaterial as Element’s customers still need substantial vehicle replacements given the OEM production shortage over the past 2-plus years.”