Top Picks from Robert McWhirter: Celestica, Descartes Systems Group, and ...

Category: Small Business Borrowing Published: Saturday, 08 August 2015 Written by Admin

Robert McWhirter, president, Selective Asset Management

FOCUS: Canadian and Technology stocks


The Samp;P 500 Composite Index has been trading in narrow band (2050 to 2130) since the end of January 2015. While the price of oil has declined 53 percent since the end of August 2014 US gasoline prices have declined less than half as much. While US consumers have benefitted they continue to be cautious. Costco's year over year same store sales in July were unchanged. On a more positive note US small business borrowing rose to a record high in June as measured by Thomson Reuters' PayNet Small Business Lending Index .This is viewed favourably as PayNet notes that the index typically leads US GDP and capital spending by 2 to 5 months. The Samp;P/TSX Composite Index's earnings and cash flow are forecast to decline in 2016 by 11 percent and 14 percent respectively as a result individual stock selection will be key.

Top Picks:

Celestica (CLS.TO)

Celestica is a contract manufacturer for computer equipment for communications, health care and aerospace sectors. Celestica appears attractively priced at 11x enterprise value to forecast 2016 median earnings of $2.26 and earnings growth of 15 percent giving an EV/EPS to earnings growth ratio of .73x In addition to a four quarter free cash flow yield of 6.7 percent and a 14 percent forecast ROE from a technical analysis perspective Celestica's shares appear headed higher.

Descartes Systems Group (DSG.TO)

Descartes Systems uses a cloud based network to improve productivity, performance and security for transportation companies. Descartes continues to grow organically and via acquisitions. A four quarter trailing free cash flow yield of 3.3 percent and 12 percent forecast ROE appear attractive. Earnings are forecast to grow 15 percent in FY2017 (Feb.). Descartes has a high percentage of recurring revenue so investors are willing to pay an above average valuation of 25X enterprise value to February 2017 forecast earnings of $1.07.

ProMetic Life Sciences (PLI.TO)

ProMetic is a biopharmaceutical company that uses its Ligand technology to purify compounds or extract proteins from (blood) plasma. Prometic is also developing PBI-4050 an interesting drug for treating fibrosis in many organs. In early August the European Commission followed the US FDA's March 2013 lead and granted orphan drug status to Prometic's plasma derived plasminogen drug. ProMetic is currently investigating the safety, tolerability and pharmacokinetics of its plasminogen in patients suffering from plasminogen deficiency. Prometic expects to provide a preliminary report on its program in August of this year.

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