Stephen Takacsy, president, CEO and chief investment officer, Lester Asset Management
FOCUS: Canadian stocks
MARKET OUTLOOK:
Amidst the on-going pandemic, financial markets continue to defy gravity and logic. Many bubbles have formed (housing, cryptocurrencies, SPACs), yet many attractive investment opportunities have also been created. While most sectors have rallied sharply from the lows of March 2020, there are still areas where valuations are attractive such as energy infrastructure, renewable energy producers, asset managers, and telecom. While vaccinations are increasing, so are the rates of infection, and consequently, lockdowns in many parts of the country remain strict. We therefore continue to be cautious in our approach: not wanting to be a hero by playing the “re-opening trade”, but rather holding more stable companies and a larger cash balance, even at the risk of lagging the broader market on the upside.
TOP PICKS
Savaria is a global leader in accessibility equipment for the physically challenged. It manufactures and sells stairlifts, wheelchair lifts, and home elevators. It also manufactures and sells patient handling products such as specialized mattresses and beds for long-term care facilities, and medical equipment like ceiling lifts and slings. It just completed a transformative acquisition of Handicare of Sweden for $521M making it the largest player in the world. It expects to realize huge synergies in both revenues and costs and generate nearly $700M in sales and $100M of EBITDA. Aging demographics and the desire to live at home longer will provide strong tailwinds for many years to come.
Goodfood is one of the fastest growing companies in Canada and one of 30 top performing stocks in 2020. It is Canada’s leading meal-kit company with a national platform serving 319,000 subscribers and is now building an on-line grocery business under the Goodfood brand. Sales are up tenfold in the past three years with a gross revenue run rate of roughly $400M today. Growth has accelerated during the pandemic as more people order food online, and this trend will continue post-pandemic. FOOD is trading at an EV of just over 1X sales versus nearly 2X for its main competitor Hello Fresh. Great entry point for one of the fastest growing companies on the TSX.
Canada’s second largest wine producer and distributor, and only one of two publicly traded companies. Stock is down 45 per cent from its highs three years ago, yet it has continued to grow its sales and earnings, both by acquisition and organically through new product launches. Well managed company with strong brands like Peller Estates, and 40 per cent plus gross margins. Peller is trading at a P/E of only 12X and only 8.5X EBITDA which is a huge discount to recent winery IPOs in the U.S.. We expect Peller to report record sales and profits which should get its share price back into the mid-teens. The company also recently filed notice to buy-back shares. One of the few high-quality companies whose shares are still dirt-cheap.
PAST PICKS: June 16, 2020
CareRX (CRRX TSX) – formely CENTRIC HEALTH (CHH TSX) - **1 FOR 20 STOCK SPLIT, 06/23/2020**
CareRX is Canada’s largest institutional pharmacy supplying medication to senior care facilities. The stock is up for three reasons: their business is unaffected by the lockdowns because seniors need their medication; they made several large accretive acquisitions making them the number one player in Canada; and they are winning new business from competitors. CareRX is also launching telemedicine services and announced a partnership with Think Research to supply virtual services to senior facilities. The stock has the potential to double over the next few years.
- Then: $0.23
- Now: $6.32
- Return: 34%
- Total Return: 34%
MDF Commerce (MDF TSX) - formerly Mediagrif
MDF Commerce is an e-commerce solutions provider for large companies like Sobeys/IGA, Dollarama, and Carrefour. The company recently announced a huge contract with Aldi, the largest food retailer in the world, for a click & collect platform for its U.K. stores. MDF also enables suppliers to bid on government contracts, and recently won a large contract with NHS in the U.K., one of the largest healthcare systems in the world. MDF’s growth accelerated during the pandemic with the rush for businesses to digitize. Nearly 80 per cent of MDF’s sales are recurring SaaS revenue. Whereas Shopify trades at over 35X sales, MDF trades at under 2.5X revenues.
- Then: $6.15
- Now: $12.43
- Return: 102%
- Total Return: 102%
Sienna Senior Living (SIA TSX)
Owns and operates over 80 long term care facilities and retirement homes in Ontario and B.C.. It suffered from negative headlines during the pandemic and higher vacancy rates. However, this is transitory – there will be massive demand as the number of seniors in Canada increases. Sienna has a solid balance sheet and is entirely covered by government-guaranteed cash flows from its LTC facilities. While operating costs have risen, governments are subsidizing a large part of these costs. We expect to see growth resume in 2021 with the expansion and renovation of some facilities.
- Then: $10.00
- Now: $14.69
- Return: 47%
- Total Return: 57%
Total Return Average: 65%
WEBSITE: www.lesterasset.com
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