Jordan Zinberg's Top Picks: April 8, 2024

Jordan Zinberg, president and CEO of Bedford Park Capital

FOCUS: Canadian small and mid-cap stocks

MARKET OUTLOOK:

The recent strength in equity markets has created wide valuation disparities, resulting in an excellent environment for active managers. Our portfolio companies reported very strong results in the final quarter of 2023 and we expect the strength in operating results to continue when the first-quarter earnings season begins in late April.

The tone of the market has changed significantly so far in 2024 as compared to 2023 and new leadership is emerging, which is a healthy market dynamic. During the first quarter of 2024, the S&P/TSX Small Cap Index outperformed the S&P/TSX Composite, driven primarily by strength in the energy and materials sectors.

Smaller companies continue to trade at a substantial discount compared with their larger peers, highlighting a segment of the market that offers investors a rich opportunity set.  Notably, we are seeing a significant increase in volume recently among the small and mid-cap stocks that we follow.

TOP PICKS:

Goeasy (GSY TSX)

Goeasy is a Canadian specialty lender that continues to demonstrate substantial organic growth in their loan book and expansion of their product offering. The company recently reported very strong fourth quarter results, increased their three-year targets, and announced that their will be introducing a credit card product later this year. Based on our estimates, the current valuation represents eight times 2025 earnings, which is very attractive for a company that consistently produces a return on equity in excess of 20 per cent.

Enterprise Group (E TSX)

Based in Alberta, Enterprise Group provides equipment and services to some of Canada’s largest energy companies. Profit margins are expanding rapidly, driven by Enterprise’s power division, which helps customers power their sites with natural gas instead of diesel, thereby reducing both emissions and costs substantially. High insider ownership, underfollowed, juicy margins, and trades on just over three times 2025 earnings, based on our estimates.

Topicus.com (TOI CVE)

Topicus is a vertical market software vendor that was spun out of Constellation Software in 2021. Following the Constellation Software playbook, Topicus looks to acquire mission-critical, high margin businesses in Europe across several different industries. Consistent with Constellation, Topicus offers investors strong revenue growth, attractive margins, and very high returns on capital.