RBC Capital Markets has updated its list of Top 30 Global Ideas for 2020.
We’ve paired it down to a more manageable list of 10 based on Canadian representation, technology trends and total implied returns for the stocks, which range from 17 per cent to 53 per cent over the next 12 months.
Each stock is rated “Outperform” by RBC’s team of analysts.
RBC’s list of 30 has a total return year-to-date of 13 per cent, which easily outstrips the S&P 500 Index, which has gained 6 per cent, and the S&P/TSX Composite, down 3 per cent so far this year.
Here are abbreviated summaries by RBC’s analysts of the Top 10 Global Ideas we’ve selected from RBC’s Top 30:
Alimentation Couche-Tard Inc. (TSX: ATD.B)
Price Target: CAD 54.00
Implied All-in Return (%): 17.1
- Multiple routes to future growth.
- Solid underlying operating performance aided by global rebranding to Circle K.
- Industry performance in North America since the declaration of the pandemic reinforces defensive sector attributes.
- Attractive geographic diversification with >85% of revenue generated outside Canada.
- Real-world electric vehicle research and development lab in Norway.
- Strong balance sheet and free cash flow profile.
Brookfield Asset Management Inc. (NYSE: BAM; TSX: BAM.A)
Price Target: USD 40.00
Implied All-in Return (%): 22.4
- Investing in “real return” assets – Through its private funds and flagship listed limited partnerships, BAM is a major owner of property, renewable power, infrastructure (“real return assets”), and private equity investments around the globe.
- Leverage to a highly profitable fee-based asset manager – With $277 billion of fee-bearing capital as at Q2/20, BAM has built a large-scale and profitable asset management business.
We believe BAM’s principal competitive advantages as an asset manager and owner include:
- Global reach.
- Strong investment track records.
- Multiple funds/strategies.
Core large-cap holding – We view BAM as a core holding for most Canadian equity portfolios.
Canadian Natural Resources Limited (TSX: CNQ; NYSE: CNQ)
Price Target: CAD 31.00
Implied All-in Return (%): 53.2
- CNQ has distinguished itself globally this year, by maintaining its common dividend of $1.70 per share, along with its impressive operating cost improvements, low (near-term) sustaining capital of about $3 billion, and balance sheet/liquidity stewardship.
- CNQ possesses an impressive portfolio weighted toward long-life, low-decline upstream properties.
Cigna Corporation (NYSE: CI)
Price Target: USD 270.00
Implied All-in Return (%): 59.5
We expect CI shares to outperform the sector for the following reasons:
- Cigna’s growth outlook is accelerated through the Express Scripts acquisition, to an annual long-term EPS growth target of 10–13 per cent (vs. its previous target of ~7–9 per cent annually).
- Cigna’s industry-leading medical cost trend, combined with Express Scripts’ strong performance with company-record pharmacy cost trend, positions the combined company for strong improvement in affordability.
- Visibility remains strong on achieving management’s target of $20–21 in adjusted EPS by 2021.
- Potential catalysts
- Quarterly earnings results.
- Increased mergers and acquisitions given some expectation of vertical integration in the sector.
- Membership growth in employer groups, Medicare, and Medicaid.
- Changes in economic and employment conditions.
- Inflection points in utilization.
- Continued declines in medical trend.
CrowdStrike Holdings, Inc. (NASDAQ: CRWD)
Price Target: USD 160.00
Implied All-in Return (%): 16.5
- CrowdStrike was founded in 2011 with a mission of reinventing security for the cloud era.
- The company developed a differentiated cloud-native security platform that leverages its lightweight intelligent agent and Threat Graph database across a 10-module portfolio of solutions.
- We view CrowdStrike as a prime land-and-expand model benefiting from the software as a service (SaaS) delivery and ability to rapidly add more modules with no extra configuration or consulting needed.
Ability to maintain net expansion rates by selling additional products into its growing customer base and maintaining low churn rates.
New product introduction and/or traction from recently introduced modules.
Accelerated customer additions leveraging its multi-pronged, go-to market approach.
Faster-than-expected progression toward profitability driven by top-line success.
Gilead Sciences, Inc. (NASDAQ: GILD)
Price Target: USD 86.00
Implied All-in Return (%): 40.4
- We believe Biktarvy’s strong profile and robust launch, along with favorable demographic and pricing dynamics, will underpin good HIV franchise sustainability through at least 2025, with nearer-term competitive threats overblown; we expect this to maintain a strong foundation for GILD’s valuation.
- Favourable leadership position, pricing power, demographics in HIV.
- More predictable Hepatitis C virus HCV share and pricing, and sustainable volumes that should enable meaningful cash flows.
- Blockbuster potential for pipeline program filgotinib (rheumatoid arthritis).
Teladoc Health, Inc. (NYSE: TDOC)
Price Target: USD 260.00
Implied All-in Return (%): 18.6
- Virtual health has gone mainstream. We believe awareness and comfort with the technology have reached a tipping point and the breadth of potential use-cases is expanding rapidly.
- There are more examples of this surfacing across healthcare every day. We are also seeing increasing evidence that the Virtual First benefit design is beginning to take hold, which adds even more momentum to our outlook.
- While the rising tide should lift all boats, we believe Teladoc is the best positioned to capitalize on this.
Big client wins/new member adds. The most impactful driver of our financial model continues to be the addition of new members. COVID-19 is pushing TDOC’s paid member base to record levels, up 40% in 2Q20 from the end of 2019. Opportunities this large are few and far between.
Uber Technologies Inc. (NYSE: UBER)
Price Target: USD 50.00
Implied All-in Return (%): 37.1
- We believe investors largely agree that Uber faces very large total addressable markets, has a leading competitive position, and benefits from an experienced management team.
- The controversy is around profit potential, heightened by the largest loss profile of almost any IPO (~$3 billion EBITDA loss in 2019).
- However, over the past two years, we have seen Rides Adjusted EBITDA margins increase from 16.8% in 2018 to 19.5% in 2019, and Eats segment Adjusted EBITDA margins improve over the last four quarters, driven by what we think is a more rational environment.
Key paths to profitability:
Eventual rationalization in competitive dynamics leading to fewer subsidies.
Long-term pricing power.
Expense leverage as the company scales.
Twilio Inc. (NYSE: TWLO)
Price Target: USD 320.00
Implied All-in Return (%): 29.5
- Large Addressable Market. We estimate Twilio’s addressable market to be ~$34 billion today. With revenues of ~$1.13 billion in 2019, Twilio is only ~3% penetrated today.
- We view Twilio as a highly differentiated asset that would complement the product suite of multiple enterprise software vendors. We believe a Tier-1 or greater multiple (10x+ EV/FY+2 revenue) would be required.
Visa Inc. (NYSE: V)
Price Target: USD 243.00
Implied All-in Return (%): 22.0
- Visa’s business model is such that, while we expect near-term results will be hurt by the macro environment, we believe it should be among the first companies to benefit from a reacceleration in retail spending.
- In addition to being one of the best ideas in our space, we believe that Visa’s fundamentals and significant free cash flow generation rank it among a select group of companies with strong fundamentals.
Disclosure: RBC Capital Markets may provide investment banking services to some or all of these companies.
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