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HomeStocks in FocusStephen Takacsy's Top Picks

Stephen Takacsy’s Top Picks

Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management, discusses his top picks: Pet Valu, MDA, and Boralex.

Market Outlook

In 2024, stocks and bonds are expected to be positive due to a decline in core inflation, not due to rapid interest rate hikes by central banks. The North American economy has been resilient despite higher rates, and the job market remains strong with high savings rates. This may lead to a “goldilocks” scenario where disinflation or deflation occurs, allowing for rate cuts and a still-growing economy. If the economy weakens too much, rate cuts would be more aggressive.

The bond market has fallen due to delayed rate cuts, but investors continue to invest in high-yielding short-term corporate bonds with attractive yields. They are adding Canadian equities to their portfolio, with private equity firms acquiring Canadian companies at premiums. Other bargains include large cap high dividend yielding sectors and renewable energy stocks.

Top Picks

Pet Valu (TSX: PET)

Pet Valu, Canada’s largest pet supply retailer, has seen industry growth due to increased pet adoption rates and higher spending per pet. With over 780 franchised stores, it generates 22% EBITDA margins and strong free cash flow. Despite slowed same-store sales growth post-pandemic, the stock has corrected from $42 to $32.

The company plans to invest in new distribution centers, open 40-50 new stores annually, and maintain strong organic growth, with attractive price-to-earnings ratios and potential double-digit EPS growth in 2025.

MDA

MDA, a global leader in space technology, is well-positioned in the emerging space economy, focusing on satellite-based telecommunication, earth observation data, and space infrastructure. With a $3.1 billion backlog, MDA anticipates 20-25% EBITDA growth per year over the next three years.

MDA, a Canadian company, is gaining market share due to a $2 billion contract for Telesat’s Lightspeed broadband LEO constellation, which is expected to be financed by the Canadian government. MDA’s technological advancements and low EBITDA make it a promising investment.

BORALEX (BLX TSX)

Boralex, a leading Canadian renewable energy producer, has reported record EBITDA growth and strong free cash flow generation. With a large pipeline of wind, solar, and storage projects, it is expected to double its production capacity in the coming years.

IPP valuations have declined due to rising interest rates, project costs, funding needs, and dividend cuts. Boralex, well-financed with a low payout ratio, offers a low entry point under $30.

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