Stephen Takacsy, president, CEO and chief investment officer, Lester Asset Management 

FOCUS: Canadian stocks 

 MARKET OUTLOOK:

Volatility has increased significantly in 2022 due to a confluence of factors. The investment environment remains very uncertain due to the after-effects of the pandemic, rising interest rates, high inflation, labour shortages and supply chain disruptions, which have worsened due to the war in Ukraine and more recently lockdowns in China. As a result, both stock and bond markets have suffered significant corrections. There is no doubt that rising rates and high inflation will slow down the economy, some parts more than others (i.e. real estate and high priced consumer discretionary).

Canada and the U.S. should be able to engineer a “soft landing” as they are coming from a good place with low unemployment levels, high amounts of savings, still low-interest rates and strong currencies. We believe that the rate of inflation will ease as the economy slows down, supply and demand for goods come more into balance, supply chains normalize and that central banks will end the tightening cycle sooner than anticipated.

Nevertheless, we are staying well-diversified in recession-resistant businesses (Telcos, Pipelines) and those benefitting from strong thematic tailwinds such as renewable energy (Boralex, Northland Power), aging demographics (CareRx, Savaria, Park Lawn, Siena Senior Living), and the digitization of everything (select technology companies). We have also been adding high-quality companies whose prices had corrected significantly such as Cargojet, Canadian Tire, and WSP Global.

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TOP PICKS:

SAVARIA (SIS TSX)

Savaria is a global leader in home accessibility and patient handling products. It manufactures and sells home stairlifts and home elevators, as well as patient handling systems and ceiling lifts for long-term care facilities. Last year it completed the transformative acquisition of Handicare of Sweden, making Savaria the largest player of accessibility equipment in the world. It expects to realize significant synergies in both revenues and costs from this acquisition. Savaria has a record backlog and has given guidance for $775M in revenue and $120M to $130M in EBITDA for 2022, a 20-30 per cent increase from $100M in 2021. The stock has come down over 30 per cent from its high on some temporary margin compression, providing an excellent entry point for such a unique, well-managed and growing business. The company is now trading at 10x EBITDA and pays a 3.5 per cent dividend. Aging demographics and the desire to live at home longer will provide strong tailwinds to the company for many decades to come.

JAMIESON WELLNESS (JWEL TSX)

One of our newest positions, JWEL, is Canada’s number one consumer health brand in vitamin and supplements with a 25 per cent market share. The company has been growing both sales and profits organically since its IPO five years ago, by gaining market share in Canada, growing its export sales and launching new products. JWEL has increased its EBITDA margins to over 22 per cent through volume growth and production efficiencies. Last week JWEL announced the acquisition of Nutriwise in the U.S. at around 9x EBITDA, providing an excellent platform for them to grow south of the border. The stock used to be very expensive, but the valuation has come in as the stock price has declined in combination with earnings per share growth, providing a great entry point into this unique high-quality company.

BORALEX (BLX TSX)

One of Canada’s fastest-growing renewable energy producers with a strong presence in Quebec and France. The company had long-term contracted power production agreements mostly in wind, solar and hydro. Just last week, Boralex announced that it has won contracts to build five solar farms in the state of N.Y. for 540MW, which will increase its power production by 20 per cent. Additional wind contracts in Quebec and France are expected to double BLX’s production capacity by 2025. BLX is well-positioned to benefit from Europe’s desire to move away from Russia’s fossil fuels and increase renewables. Valuations of IPPS have come way down since last year and this represents a great entry point in a world leader with high-quality assets, a strong project pipeline and multi-decade tailwinds in the fight against climate change.