Jordan Zinberg, president and CEO of Bedford Park Capital

FOCUS: Canadian small and mid-cap stocks

MARKET OUTLOOK:

Despite several shifts in expectations regarding interest rates, persistent volatility and geopolitical tensions, equity markets climbed the proverbial wall of worry in 2023. Last year provided investors with several different opportunities to earn high rates of return in their portfolios. U.S. equities notched impressive gains, and fixed-income markets presented some very attractive dislocations. In the domestic equity market, which is our area of focus, Canadian stocks once again lagged their U.S. peers, but still displayed pockets of strength, particularly in the technology sector. 

So far in 2024, market action has been relatively muted and volumes have been light. Our earnings expectations for our portfolio companies remain strong, and we are excited by the opportunity set within the Canadian small and mid-cap segment of the market. 

Small-cap stocks are trading at a significant discount to their large-cap peers as well as a discount to their historical multiples. We continue to find outstanding Canadian growth stocks trading at very attractive multiples and believe current valuations provide an excellent set up for future returns.   

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TOP PICKS:

Payfare (PAY TSX)

Payfare is a Canadian fintech company that provides gig workers instant access to their earnings, instead of waiting for a traditional pay cycle. An early mover in a space that’s growing extremely fast, the company has established partnerships with Uber, Lyft and DoorDash and is now looking at new market segments. Payfare is profitable, has an above average return on equity profile, and margins continue to expand. The stock trades at a low valuation given the growth rate and we see multiple catalysts on the horizon.     

Foraco (FAR TSX) 

Foraco is a leading global drilling services contractor that operates across several major mining regions. The company has gone through a major transition in recent years, focusing its footprint on stable jurisdictions, signing long-term contracts with Tier 1 customers, and demonstrating dramatically improved financial performance.  Despite consistent growth in revenue and profits, expanding margins, and a recent reduction in financing costs, the stock currently trades at less than four times 2024 earnings.     

Propel Holdings (PRL TSX)

Propel is an online lender that provides U.S. consumers with fast access to small loans and lines of credit. Since going public in late 2021, management has done a fantastic job growing the business, adding additional products and entering new markets. Propel is a highly profitable growth stock that trades on a single-digit profit-to-earnings multiple and also pays a healthy 3.4 per cent dividend   

PAST PICKS: February 3, 2023

Converge Technology Solutions (CTS TSX)

Then: $5.92
Now: $3.91
Return: -34 per cent
Total Return: -33 per cent

Adentra (ADEN TSX)

Then: $34.25
Now: $31.51
Return: -8 per cent
Total Return: -6 per cent

Source Energy Services (SHLE TSX)

Then: $3.10
Now: $5.87
Return: 89 per cent
Total Return: 89 per cent 

Total Return Average: 17 per cent