Jerome Hass, Portfolio Manager, Lightwater Partners
Focus: Canadian Mid-Cap Stocks
Top Picks: Total Energy Services, Surge Energy, Fairfax Financial
MARKET OUTLOOK:
After an epic year for the TSX in 2025 (plus 28.2 per cent), 2026 has had a strong start for the markets (plus 6.5 per cent year-to-date).
The rally has been turbo-powered by gold and silver with help from the oil patch and financials. Inflation seems to be cooling so there is a better chance of the Bank of Canada cutting rates again. We fully invested but leery in terms of outlook. Valuations are stretched by any standard on both sides of the border.
Later in the year, as talks on Canada-United States-Mexico Agreement CUSMA free trade renewal heat up, we expect to see more sabre-rattling from U.S. President Trump by threatening to cancel CUSMA or by adding more sector tariffs. Despite Friday’s U.S. Supreme Court ruling, we would avoid manufacturing or any tariff-vulnerable sectors.
Macroeconomic and political headwinds aside, there are always plenty of opportunities in the Canadian mid-cap space to put capital to work effectively. These companies tend to be under-followed and undervalued due to the absence of Canadian pension funds, Canadian institutional investors or retail brokerages allocating funds to this segment.
- Market-moving news, fast: Get the BNN Bloomberg App now
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
TOP PICKS:
Total Energy Services (TOT TSX)
Total Energy Services is a diversified energy services company in four verticals: drilling, rentals, compression, and well servicing with operations in Canada (45 per cent), USA (32 per cent) and Australia (23 per cent).
The stock has a $640million market cap with a 2.3 per cent yield (paid quarterly).
The company is run by Dan Halyk, a no-nonsense lawyer from Saskatchewan. He has never had a write-down of any acquisition and is fiscally disciplined with rock solid B/S (no net debt by year-end).
Analysts expect TOT to grow earnings before interest, taxes, depreciation, and amortization (EBITDA) by 16 per cent in 2026, among the sector’s highest. While there has a been a market rotation into the energy service sector, TOT has lagged some of its more liquid peers. TOT is still extremely cheap at three times enterprice value(EV)/EBITDA 2026 and seven times per 2026.
Surge Energy (SGY TSX)
SGY is 23,000 barels of oil equivalent producers of light/medium conventional oil with 88 per cent of production in oil & NGLs. Production is focused on two of Canada’s best fields, Sparky and SE Saskatchewan (90 per cent of prod.)
The company has 12-years of drilling inventory and low decline rates (25 per cent). In the few past years, SGY has had very good drilling results. Surge is increasing use of waterfloods to reduce declines rates.
Management is committed to maximizing free cash flowand shareholder returns by returning capital to shareholders via dividends and share buy-backs. In recent months, we have witnessed long-anticipated multiple expansion in the energy sector (plus 15 minus25 per cent) but this has been largely confined to the largest most liquid stocks. Mid-cap conventional oil stocks such as SGY have lagged this rally. Where the largest Canadian oil stocks are trading north of 7.5 times EV/DACF, Surge trades at about half that multiple at 3.8 times EV/DACF 2026.
Fairfax Financial (FFH TSX)
Fairfax is one of the largest P&C (property & casualty) insurance companies in Canada.
Fairfax aims to grow its book value by 15 per cent per year on average. On Friday it reported solid Q4 earnings that were ahead of consensus.
FFH grew its book value by 19 per cent in 2025. The stock has been a great long-term performer (average total return of 19 per cent per year since 1985).
Fairfax is led by Prem Watsa, often labelled as the ‘Warren Buffett of the north’ (FFH’s closest per is Berkshire Hathaway).
Given FFH’s large investment platform versus traditional commercial P&C insurers, the market values FFH at a discount to its peers. Despite a similar market cap and ROE to Intact Financial (IFC TSX), FFH is valued at 1.3 times P/B f vs. IFC: 2.4 times price to book ratio (P/B). Even much smaller Definity Financial trades at a higher P/B ratio of 2.0 times.
The company was active in buying backs its shares in 2024 and 2025. We believe FFH will buy back five per cent of their shares in 2026
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TOT | N | N | Y |
| SGY | Y | N | Y |
| FFH | N | N | Y |
PAST PICKS: FEB. 21, 2025
Mainstreet Equity (MEQ TSX)
Then: $200.78
Now: $181.25
Return: -10%
Total Return: -10%
DRI Healthcare Trust (DHT.UN TSX)
Then: $12.04
Now: $16.24
Return: 35%
Total Return: 40%
Secure Waste Infrastructure Corp. (SES TSX)
Then: $14.31
Now: $19.56
Return: 37%
Total Return: 40%
Total Return Average: 23%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MEQ | N | N | Y |
| DHT.UN | Y | Y | Y |
| SES | N | N | Y |
