Jan 5, 2022
Canada dominates RBC top 30 global investment ideas for 2022
Canadian firms account for nearly 1 in 4 of RBC's top 30 global investing ideas for Q1 2022
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Canadian companies accounted for nearly one-quarter of the individual equities from around the world where RBC Capital Markets sees substantial upside potential in the early months of 2022.
Seven TSX-listed, Canadian-headquartered businesses were included in the first-quarter update of RBC’s Top 30 Global Ideas for this year which the bank distributed to clients on Tuesday. They represent multiple sectors of Canada’s economy, spanning retail, natural resources, transportation, and telecommunications.
Each company is listed alphabetically below along with a summary of RBC’s investment thesis.
Alimentation Couche-Tard Inc. (ATD)
The Montreal-based convenience store giant has “multiple avenues for growth”, according to RBC Analyst Irene Nattel. The operator of the Circle K brand currently generates more than 85 per cent of its revenue from outside of Canada with a recent acquisition in Asia giving the company “a platform for accelerating growth” in new territories. Couche-Tard is also the only North American player with a strong footprint in Norway, which is a global leader in electric vehicle sales, Nattel writes. As a result, Couche-Tard “is gaining valuable insight into consumer behaviour [and] revenue opportunities associated with top-up charging.” With a $73-per-share price target, RBC expects the stock to provide a roughly 48 per cent return by early 2023.
Calgary-based AltaGas is “neither” a utility nor a midstream player, according to RBC Analyst Robert Kwan, adding the company is “catalyst-rich” heading into 2022. Potential asset sales such as the Mountain Valley Pipeline, new long-term take-or-pay infrastructure projects and additional tolling contracts for West Coast gas exports are among the most likely events that Kwan said could lead to investor upside this year. With a $31-per-share price target, RBC expects AltaGas stock to return more than 17 per cent by early 2023 to investors who buy today.
Brookfield Asset Management (BAM.A)
The combination of Brookfield’s “strong long-term investment track record”, roughly US$80-billion available to fund acquisitions “at potentially attractive prices in the current market environment” and a “demonstrated ability to fundraise and drive scale benefits” is why RBC Analyst Geoffrey Kwan views the stock “as a core holding.” RBC raised its price target on the company’s stock to US$73 per share from US$70 previously, suggesting a one-year return of nearly 22 per cent.
Canadian Natural Resources Ltd. (CNQ)
Among the unique factors that RBC Analyst Greg Pardy said distinguishes the country’s largest oil and gas producer globally is its distinct lack of a chief executive officer. While Murray Edwards is the company’s executive chairman, Tim McKay is president and Mark Stainthorpe is chief financial officer, CNQ compensates for the lack of a CEO with an 18-member management committee that meets weekly and oversees “all matters spanning marketing, finance, environmental, social, and governance (ESG), operations and technology, amongst others,” Pardy says. The company also boasts long-life, low-decline assets that are anchored by moderately sustaining capital, which Pardy said provides “superior free cash flow generative power.” RBC maintains a $60 per share price target on CNQ, implying a nearly 17 per cent return for investors who buy the stock today and hold until early 2023.
Canadian Pacific Railway Ltd. (CP)
The “transformative” acquisition of Kansas City Southern is mainly why RBC Analyst Walter Spracklin includes Calgary-based CP Rail on the Top 30 list. If the deal is approved by U.S. transportation regulators, Spracklin said the US$27-billion deal “should set the stage for significant growth and a material upward valuation re-rate.” Of particular note is the roughly US$1-billion in operational cost savings CP expects to achieve through the combination of the two entities. Given the two rail networks have little in the way of physical overlap, Spracklin said the risk that the merger does not get approved is low.
Element Fleet Management Corp. (EFN)
The Toronto-based company is the largest vehicle fleet manager in North America and given the industry has high barriers to entry, Element should expect “outsized benefits”, according to RBC Analyst Geoffrey Kwan. Since the cost of switching to another fleet manager is high, the industry benefits from long-term contracts and very low client turnover, Kwan said. Once global vehicle production delays subside, Kwan said Element’s stock should respond favourably. RBC raised its price target on the company’s stock to $17 per share from $16 previously, suggesting a one-year return topping 34 per cent.
“In our view, no other company in our coverage has as many potential sources of upside to our [net asset valuation] as Telus does,” according to RBC Analyst Drew McReynolds. Broader FTTN (fibre-to-the-node) coverage by late 2022, which replaces old copper wires with faster fibre-optic cables, “should enable Telus to capitalize on new 5G growth opportunities without meaningful capital constraints, opportunity costs or [free cash flow] impairment” McReynolds said. Additional cost savings from the decommissioning of its remaining copper-based infrastructure and the “crystallization” of Telus Health and Telus Agriculture only adds to his optimism. RBC maintains a $32 per share target on the Vancouver-based company’s stock, implying a one-year return of nearly 12 per cent.
