Once again this year we’re updating the Canadian companies included on a list of 30 top global stock ideas from a global strategy team.
There are eight on the list to kick off 2023.
These names are “high-conviction, long-term” investing picks with “significant upside potential.”
What follows is a summary of commentary on these global leaders from the strategy team’s analysts.
RBC Dominion Securities’ list of 30 top global stock ideas has a total positive return of 23.2 per cent since inception in 2019, topping the MSCI World Index benchmark of 15.6 per cent.
Only one Canadian company has been added to the list from last quarter and that is:
Constellation Software Inc. – $2600 price target.
“We add Constellation Software, with our outlook for high shareholder returns reflecting Constellation’s ability to rapidly compound capital through acquisitions, potential to benefit from an uncertain macro environment (high mix of recurring revenue and greater likelihood of M&A), and attractive valuation.”
Alimentation Couche-Tard Inc. – $80 target.
“Despite a challenging macro backdrop, there are multiple avenues for growth, underpinned by:
1) top-line momentum from a more-focused, data-driven approach to merchandising/promotional strategies;
2) well-defined initiatives and strategies to optimize procurement;
3) focus on localized merchandise pricing, promotions, and assortments;
4) innovative fuel initiatives, including rollout of Circle-K gas;
5) cost optimization;
6) network development; and
7) opportunistic acquisitions.
On track to exceed fiscal 2023 EBITDA objective of $5.1 billion excluding merger and acquisition.
Solid underlying operating performance aided by focused execution of strategies outlined at mid-2021 investor event to deliver ‘double again’ objective.”
Canadian Natural Resources Ltd. – $89 target.
“Canadian Natural Resources’ management committee structure and shareholder alignment are unique factors which distinguish the company globally.
CNQ’s long-life, low-decline portfolio—anchored by moderate sustaining capital— affords the company superior free cash flow generative power.
Impressive Shareholder Returns. CNQ’s share buyback remains ring-fenced from acquisitions and strategic growth capital under a formulaic approach.
More specifically, now that net debt levels are below $15 billion, the company is allocating 50 per cent of its free cash flow after dividends and sustaining capital to share repurchases, with the balance (less strategic growth capital/acquisitions) earmarked for debt reduction.”
Canadian Pacific Railway Ltd. – $122 target.
“Our positive view on CP centres on a best-in-class railroad on the cusp of a transformative acquisition that, if approved, should set the stage for significant growth and a material upward valuation re-rate.
CP’s purchase of Kansas City Southern (KSC) significantly improves network reach.
The network advantage of the CP-KCS deal is the most compelling merit of the transaction.
The deal opens up new markets as well as gives CP a meaningful structural advantage versus peers.
The transaction significantly increases the company’s network reach from Vancouver to Saint John, and now via KCS, down to the ports of Lazaro Cardenas and Veracruz in Mexico.
The new network connects six of the seven-largest metro regions in North America in a single-line connection, particularly between the Midwest US/Canada into the Gulf Coast / Mexico and a new third option between the Midwest US and Texas/Mexico.”
Element Fleet Management Corp. – $26 target.
“Four key themes drive our positive view of EFN:
1) attractive growth – We forecast that EFN’s EPS could grow at a mid-teens compound annual growth rate (CAGR) over the next five years, driven by new client wins, organic growth within existing customers, and significant returns of capital;
2) multiple potential catalysts;
3) strong defensive attributes – EFN faces minimal credit/residual risks and tends to have long-term contracts (3–5 years) with high retention rates (99 per cent); and
4) attractive valuation – we see high EPS growth as a key driver of valuation and potential valuation multiple expansion.”
Nutrien Ltd – US$120 target.
“Nutrien is the world’s largest fertilizer producer and ag input retailer, formed through the merger of Agrium and PotashCorp in January 2018.
We believe the company has built the most diverse, vertically integrated agricultural input business with an attractive earnings profile, growing free cash flows, and solid balance sheet.
We expect Nutrien to generate more than $18B in excess cash (after dividends) through 2025, which should be deployed through a combination of share buybacks, dividend increases, and accretive Retail M&A.
We expect the company to continue regular share buybacks and dividend increases.”
Restaurant Brands International Inc. – US$80 target.
“Despite above-average global system sales growth and accelerating comp growth at Burger King and Popeyes, QSR’s valuation remains in line with the global “all-franchised” restaurant peer group average, driven in large part by continued weakness at Tim Hortons (responsible for 50 per cent of total op. profit).
While we believe that TH sales improvement remains the primary catalyst for QSR shares, we see the combination of BK-driven, near-best-in-class unit growth (normalized 5-per-cent-plus), current momentum at PLK, significant scale, and potential to add brands in the future as key positives for a stock that in our view remains attractively valued.”
Editor’s note: QSR recently hired Patrick Doyle as its Executive Chairman.
He spearheaded tremendous growth as CEO of Domino’s Pizza between 2010 and 2018, which QSR outlines in this news release statement:
“Mr. Doyle led one of the restaurant industry’s most successful transformations by focusing on putting the guest experience first and being the best at digital ordering and food quality.
During his tenure, he delivered:
- 29 consecutive quarters of same store sale increases
- system-wide sales growth of $5.6B to $13B
- an over 2x increase in home market franchisee profitability
- created approximately $11B of shareholder value
- increasing the share price over 23x from nearly $12 in March 2010 to $271 in June 2018.”
Telus Corp. – $34 target.
“We view 2022 as a pivotal turning point for TELUS as the company transitions into a new post-FTTH (Fibre To The Home) build / 5G phase.
We expect the company to emerge in 2023 with a distinctively different financial and operational profile relative to most global telecom peers.
As FTTH coverage reaches 85-90 per cent of the targeted broadband footprint by the end of 2022, enhanced capex flexibility should enable TELUS to capitalize on 5G without meaningful capital constraints, opportunity costs or free cash flow impairment.
Longer term, under certain operational and regulatory conditions, we see strong strategic and financial rationale for TELUS to explore a transformational re-organization that can fully unlock the value of core infrastructure assets and core technology assets.”
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