Sep 11, 2020

Robert McWhirter's Top Picks: Sept. 11, 2020

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Full episode: Market Call for Thursday, Sep. 10, 2020

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Robert McWhirter, president of Selective Asset Management
FOCUS: Canadian dividend and small-cap stocks

MARKET OUTLOOK

We expect this intermediate correction will last one or two months after which equity markets should continue to rise over the next 12 months as equities appear to be an attractive alternative to low bond yields while rates are expected to be “lower for longer.”

TOP PICKS

Intertape Polymer Group (ITP TSX)

Intertape Polymer Group makes pressure-sensitive and water-activated carton sealing tapes used in e-commerce shipping. It has a 5.2 per cent yield and a low 25 per cent payout of four quarter trailing cash flow with a significant 10.9 per cent free cash flow yield. Intertape’s free cash flow grew 200 per cent year-over-year to $99 million on a four quarter trailing basis. We expect some of this will be used to pay down debt. Net debt to EBITDA is currently 3.5 times (C-). Earnings are forecast to grow 13 per cent to $1.34 in 2021, with a further 14 per cent increase in earnings forecast for 2022, giving a price/earnings multiple of 11.5 times. Analysts’ earnings estimates for 2021 were revised up by 12 per cent in the past 90 days. Intertape’s forecast return on equity for 2021 is an attractive 23.3 per cent (A+).

On September 5, Joe Farrell, quantitative technical analyst at iA Securities, noted that the company had reversed a three-year relative strength downtrend to the upside: “a sustained breakout would mark a very bullish reversal and target further technical upside to the $20-$23 zone,” implying 30 to 49 per cent potential upside. Intertape shares are a candidate for purchase in the Canadian Conservative Growth Strategy, offered by Enriched Investing.

Kirkland Lake Gold (KL TSX)

Kirkland Lake Gold operates gold mines in northeastern Ontario and in Victoria State, Australia. It has a 0.7 per cent yield and a low 8 per cent payout of four quarter trailing cash flow. It has a 6.1 per cent free cash flow yield, which grew 48 per cent year-over-year to $1.2 billion on a four-quarter trailing basis. On July 31, the company reported year-over-year sales growth of 63 per cent, with a 69 per cent year-over-year increase in earnings. Kirkland’s earnings are forecast to grow 13 per cent to $1.34 in 2021, giving a price/earnings multiple of 11.5 times. Analysts’ earnings estimates for 2021 were revised up by 3 per cent in the past 90 days. Kirkland’s forecast return on equity for 2021 is an attractive 22 per cent (A+). The company is undertaking a massive 250,000 meter drilling program at the recently acquired Detour Lake gold mine looking for high grade underground deposits. On September Ron Meisels, technical analyst at Phases& Cycles, noted that Kirkland Lake had further technical upside to $79 and $84, implying 9.9 to 17 per cent potential upside from its current stock price. Kirkland Lake shares are a candidate for purchase in the Canadian Conservative Growth Strategy.

Sun Life Financial (SLF TSX)

Sun Life Financial provides insurance, retirementand wealth management services to individuals and corporations in Canada, the U.S. and Asia. It has a 3.9 per cent yield and a low 16 per cent payout of four quarter trailing cash flow with a significant 20.4 per cent free cash flow yield. This grew 25 per cent year-over-year to $6.6 billion on a four quarter trailing basis. Sun Life’s earnings are forecast to grow 9 per cent to $5.59 in 2021, giving a 2021 price-to-earnings multiple of 9.9 times. Analysts’ earnings estimates for 2021 were revised up by 6 per cent in the past 90 days. Sun Life’s forecast return-on-equity for 2021 is 14.3 per cent (B+). The $60 consensus price target by ten analysts implies 13 per cent potential upside. Sun Life Financial shares are a candidate for purchase in the Canadian Conservative Growth Strategy.