Stephen Takacsy’s Top Picks for April 29, 2025

Stephen Takacsy, president, CEO and CIO, Lester Asset Management

FOCUS: Canadian stocks

Top picks: EQB, Altus, Tecsys

MARKET OUTLOOK:

We saw a positive environment for stocks and bonds in 2025 with low inflation, falling interest rates and strong employment, however U.S. President Donald Trump’s hostile words and trade war against its closest allies and traditional trading partners has clouded the picture. He has caused most of these countries to push back by imposing retaliatory tariffs, boycotting U.S. products, and selling U.S. stocks and bonds. This has created economic and geopolitical uncertainty, put pressure on U.S. Treasury yields and caused the U.S. dollar to drop, as well as caused an immeasurable amount of damage to the U.S.’s reputation.

With such unpredictability, we’ve ensured that our Canadian equity portfolio is resilient with minimum impact from tariffs and low exposure to a consumer slowdown. We are also taking advantage of market downdrafts to add to our holdings that are being unfairly punished such as Savaria, Jamieson Wellness, Pollard Banknote and CCL.

Canadian bonds have been volatile, influenced by the U.S. bond market which is being pressured by Trump’s tariffs. These are seen as inflationary in the short term, but also recessionary affecting consumers and corporate credit spreads, and in the longer term the U.S. government’s credibility and creditworthiness from high debt levels combined with higher interest rates. Foreign investors are fleeing the U.S. market and higher treasury yields are warning Trump that his onerous tariffs are bad policy. Our Fixed income strategy continues to be invested in short term higher-yielding corporate bonds, which are trading at attractive yields of five per cent to seven per cent, well ahead of inflation, and with low risk.

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TOP PICKS:

EQB (EQB TSX)

Canada’s Challenger Bank - EQB, also known as Equitable, is Canada’s seventh largest bank. Investors still associate it as primarily an alternative mortgage lender like home capital, but since its acquisition of Concentra Bank in 2022, EQB has a much more diversified mix of consumer and commercial lending, equipment financing and asset management. EQB has been the best performing bank stock on the TSX for over 10 years now and has the fastest growth rate and highest return on equity (ROE) of all the Canadian banks. EQB currently trades at under 1.2 times book value (BV) and less than eight times forward price to earnings ratio (P/E). These are lower multiples than the big banks despite EQB’s higher growth rate, higher ROE of 15 per cent plus, and strong capital position. EQB consistently grows its book value by 10 per cent to 15 per cent per year, hikes its dividend by up to 20 per cent per year, and has been buying back shares lately. The stock’s recent pullback of almost 20 per cent has created a great buying opportunity. Of note is that Stephen Smith, EQB’s largest shareholder, has also been buying shares, increasing his stake to over 17 per cent.

ALTUS GROUP (AIF TSX)

Global leader in real estate analytics- Altus is a real estate consulting company that is now mostly a pure-play technology company. It divested of several businesses over the years including most recently its tax advisory service. It’s focus now is on its industry leading software platform which provides specialized analytics and data for valuing and monitoring the performance of commercial real estates assets. Think of it as the Bloomberg of real estate. Its clients are mostly banks, insurance companies, asset managers, pension funds, real estate owners and property managers. The stock was always expensive, however recurring software revenue has grown to nearly 75 per cent of overall revenues and EBITDA margins continue to expand to nearly 30 per cent such that the company now deserves its higher tech multiple. However, it still trades at a significant discount to its peers. Altus has been aggressively buying back shares at an average price of over $54 with the proceeds of the sale of its tax business. It would also make an attractive acquisition target for larger U.S. data analytics companies such as CoStar, S&P, Morningstar, MSCI and Thompson Reuters.

TECSYS (TCS TSX)

High-quality small cap tech stock- Tecsys develops and sells supply chain management software solutions, mainly to hospital networks in the U.S. which is a segment it dominates and is now expanding into pharmacies. It also sells supply chain solutions to businesses that have complex distribution, including warehousing, transportation, and logistics. Its software platform is end-to-end from purchase-order management and fulfillment to inventory management and warehousing, to accounting and analytics. We’ve recommended Tecsys on several occasions as far back as 2019 when it was $15 following which it quadrupled to over $60. We also recommended again in 2023 in the mid $20s after tech stocks corrected. TCS recently raised its guidance as recurring software (SaaS) revenues are growing by over 30 per cent per year, gross margins have expanded to over 70 per cent, and EBITDA margins are expected to surpass 10 per cent next year. Tecsys trades at around three times revenues, a significant discount to its peer group. TCS has also been aggressively buying back shares. The stock’s recent 20 per cent pullback presents a great buying opportunity. We think Tecsys could be sold to a strategic buyer for as much as $100 per share within a few years.

PAST PICKS: March 28, 2024

PET VALU (PET TSX)

• Then: $31.66
• Now: $27.48
• Return: -13%
• Total Return: -12%

MDA SPACE (MDA TSX)

• Then: $14.71
• Now: $26.74
• Return: 82%
• Total Return: 82%

BORALEX (BLX TSX)

• Then: $28.62
• Now: $31.23
• Return: 9%
• Total Return: 11%

Total Return Average: 27%