Jordan Zinberg, president and chief executive officer, Bedford Park Capital

MARKET OUTLOOK:

Equity markets have rallied nicely year to date, with some of the hardest-hit sectors of 2022 outperforming so far in 2023. Risk-on sectors such as technology are leading the way, while defensive sectors that proved to be safe havens for investors last year are lagging.  

Notably, one of the key themes we are seeing is elevated merger and acquisition activity. While some of the premiums paid by acquirers were in line with historical norms, others have been eye-popping (Maxar 129 per cent, Freshii 143 per cent). In addition, several Canadian companies are examining various types of value maximization initiatives, including formal strategic reviews.   

Earnings season in Canada will begin in earnest next week. Without diminishing the importance of fourth-quarter results, we expect investors to be keenly focused on any updates to 2023 guidance. Valuations in various segments of the market declined significantly in 2022, presenting many attractive opportunities for astute investors.    

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TOP PICKS:

Converge Technology Solutions (CTS TSX)

Converge is an IT solutions provider that has grown rapidly both organically and through acquisitions. On Nov. 23, 2022, Converge announced that the board of directors had formed a special committee to evaluate strategic alternatives. We believe there is a high probability the company is sold at a sizable premium to the current price, presenting an excellent risk and reward profile for investors. 

Adentra (ADEN TSX)

Adentra is a leading North American distributor of architectural building products. Sizable acquisitions in both 2021 and 2022 have broadened both the product offering and customer channels, leading to a significant improvement in financial performance. Despite a nice bounce in the stock off its October lows, the shares are attractively valued at under 6x 2023 earnings.  

Source Energy Services (SHLE TSX)

Source is a fully integrated oilfield services company based in Western Canada. As one of the largest suppliers of frac sand in Canada, the company will benefit as cashed-up E&Ps ramp up its capital programs in 2023. Currently trading at a significant discount to peers, we believe the stock will re-rate higher as the company shows improved profitability while reducing its leverage throughout 2023.