The Canadian stocks listed, which should hold up during the Coronavirus outbreak, include a packaging, mobility, and a gold stock
Harvi Sadhra, Hashtag Investing | March 17, 2020 | SmallCapPower: Equity markets around the globe have effectively entered bear market territory this week. Several indexes including the Dow Jones and S&P 500 in the United States as well as the iShares S&P TSX 60 Index ETF (TSX:XIU) in Canada have declined well over 25% from record highs.
Yes, global consumer demand will be subdued this year. Several major industries including retail, airlines, energy and consumer technology will be negatively impacted as companies will lower earnings and revenue forecasts for 2020.
Further, the ongoing oil war between Saudi Arabia and Russia has resulted in rock-bottom crude prices, which has contributed heavily to the bear market.
While the short-term volatility will continue to impact equity investors, this decline needs to be viewed as an opportunity to buy companies with strong fundamentals. As Warren Buffett famously stated, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
Here we look at three Canadian stocks that should be on the radar of contrarian and value investors.
Cascades Inc. (TSX:CAS)
Cascades is a paper and packaging company that produces, converts and sells packaging and tissue products composed primarily of recycled fibers. The Company operates through four segments: Containerboard, Boxboard Europe, Specialty Products (which constitutes the Company’s packaging Products) and Tissue Papers.
As the world is preparing for the worst in terms of the COVID-19 pandemic, there is a huge surge in demand for tissue papers, hand sanitizers and canned goods. This is where Cascades stands to benefit hugely.
Several grocery stores around the world are reporting a shortage in the supply of tissue papers and some are even having a strict limit on the number of products that can be bought by a single customer.
Tissue paper sales account for 30% of total revenue for Cascades and this has helped the Company outperform the broader indexes. Cascades stock is trading at $10.17, which is 24% below its 52-week high of $13.44 and is still up a stellar 33% in the last 12-month period, compared to the S&P 500 return of -2.5%.
While most companies may report lower-than-expected revenue, Cascades is all set to benefit from growing demand for its product line. In terms of valuation, Cascades is also one of the cheaper stocks to own on the TSX.
It has a price-to-sales ratio of 0.2 and an enterprise-value-to-sales ratio of 0.56. The stock is trading at a forward price-to-earnings multiple of 8.9 and has an estimated 5-year PEG ratio of just 0.28. With a dividend yield of 2.84%, Cascades is a tempting pick for value investors as it has significant upside potential.
Savaria Corporation (TSX:SIS)
Another company that should be immune to global market shutdown is Savaria Corporation. This Canada-based company offers a range of stairlifts, platform lifts, and residential and commercial elevators.
Savaria has two primary business segments: Accessibility and Adapted Vehicles. The Accessibility business designs, manufactures, distributes and installs accessibility products, such as stairlifts for both straight and curved stairs, vertical and inclined platform lifts and elevators for home and commercial use.
The Adapted Vehicles business converts and adapts minivans through its subsidiaries. The subsidiaries offer models with rear entry, side entry or dual entry for people with mobility challenges. It makes vans accessible to wheelchairs through a ramp and a lowered floor. Adapted Vehicles can be used for personal use or commercial use (taxis).
Savaria has managed to increase sales from $120 million in 2016 to $286 million in 2018. Analysts expect sales to touch $412 million by 2021. Its earnings growth is estimated at 25% for 2019 and 20% for 2020.
Compare these metrics to the stock’s forward price-to-earnings multiple of 15.2 and a forward yield of 3.8%, we can see that investors can benefit hugely from the stock’s upside potential over the long term.
Given Canada’s liberal immigration policy, the demand for high-rise condos and apartments will keep increasing, which will be a key driver for Savaria’s top-line growth. Savaria stock is trading 41% below its 52-week high. Analysts tracking the stock have a 12-month average target price of $17, which is 86% above the stock’s current trading price.
Kirkland Lake Gold Ltd. (TSX:KL)
When equity markets are under pressure, investors tend to move capital towards alternate havens such as gold. So, here we look at one such Canadian company that provides investors with enough diversification that might help them beat the broader markets in 2020.
Kirkland Lake Gold is a Canada-based gold mining, development and exploration company. It has a diversified portfolio of assets located in the stable mining jurisdictions of Canada and Australia. The Company’s main gold mines include the Macassa Mine located in northeastern Ontario, Detour Lake mines in northern Ontario and the Fosterville Gold Mine located in the State of Victoria, Australia.
Additionally, Kirkland also owns the Holt Mine and the Taylor Mine, which are situated along the Porcupine-Destor Fault Zone, in northeastern Ontario, the Cosmo Gold Mine located in the Northern Territory, Australia and the Stawell Gold Mine located in the State of Victoria, Australia.
Investors are generally wary of investing in gold companies due to the volatility and high fluctuation of gold prices. However, the price of gold has been increasing for quite some time now and this has benefitted several companies including Kirkland.
Kirkland Lake Gold has managed to grow revenue from $948 million in 2017 to $1.82 billion in 2019. Analysts expect revenue to touch $3.12 billion in 2022. The Company continues to focus on improving profit margins and improving the strength of its balance sheet over the years.
The Company’s top-line growth has helped it increase profit margins at an annual rate of 78% in the past five years. Kirkland stock went public in July 2015 and rose by a staggering 2,900% in the next four years, driven by earnings and revenue growth.
Kirkland Lake recently acquired Detour Gold, which was one of the most sought-after, single-mine assets on the continent. While the stock is down almost 50% from its 52-week high, analysts covering the Company have an average target price of $43, which provides an upside potential of 24%.
This is a guest contribution by Harvi Sadhra, CEO and Founder of Hashtag Investing. Hashtag investing is an exclusive community for stock investors to get real-time feedback and discover compelling stocks and strategies any time.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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