I’ve learned a ton since launching Stocktrades Premium back in December. With the ability to track over 360 stocks, I’m inevitably going to be able to find some diamonds in the rough, stocks that simply aren’t covered that much in the main stream media but provide a ton of promise to prospective investors.
Over the past week or two, I’ve found three that have piqued my interest to say the least. Before I begin this piece, I’d like to give a shout out to our premium members. With the ability to request custom research from us on any stock of your choosing, one of them was actually brought to my attention by a current member.
Let me know how many of you own these stocks, or at least knew about them in the comments section below!
Heroux Devtek (HRX.TO)
Heroux Devtek is a pretty unique company. They are in the aerospace industry, but aren’t actually exposed to typical valuation metrics that are crucial to airline companies like RASM.
Why? Well, the company actually has no involvement in the passenger aspect of the airline industry. Instead, they make landing gear and actuation systems for those airplanes. And not only do they make equipment for passenger jets, they also make landing gear for the United States Military.
That’s right, they produce landing gear for a country that spends more money annually on their military than Japan, the U.K., France, India, Saudi Arabia, Russian and China combined. Donald Trump has stated the military budget for the United States in 2019 is $681.1 billion dollars.
The knock on Heroux Devtek has typically been their reliance on the defense sector. Budget cuts or a loss of a contract, much like their recent contract to produce landing gear for the C-130 Super Hercules Aircraft for the United States, could cripple the company. The company has stated it needs to make serious efforts to diversify their revenue stream into the commercial industry. And with 15% year over year growth in their commercial segment, I believe they are doing just that.
The company had a disappointing Q2 to say the least, but their third quarter earnings report was nothing short of a slam dunk. The company beat analyst expectations in revenue by 10% and posted a 66% surprise in terms of earnings. Heroux has shown their ability to synergize key acquisitions with its most recent being the acquisition of CESA, which is a leading European manufacturer in landing gear and hydraulic systems.
The best part about this acquisition? Most of it was paid for in cash. Acquisitions can become cumbersome, especially when they are financed with debt.
I’m a huge believer in Heroux. I’ve had this stock on my radar for some time now, and really regret not purchasing it prior to earnings. But, as a long term hold, this one shows some pretty big promise.
HRX.TO was added to our Bull list this morning, the same Bull list that beat the returns of the TSX by double in January. Find out more about our Bull list here.
Polaris Infrastructure (PIF.TO)
We had a member request research on this stock last week. And honestly when I first read the e-mail I figured he was talking about the recreational vehicle company. But, don’t be confused. Polaris Infrastructure is a renewable energy company.
The company has been around a while, in fact it first started trading in 2007. With a market cap of $181 million, an investor would think they could face some significant volatility with this stock. However, with a 3 month beta of 0.36, it’s proving otherwise.
Polaris is more of a long term investment for investors who believe in the renewable energy industry. And to be honest, there isn’t much not to believe in. There will come a point where renewables are the main form of power generation in the world. It may take us a while to get there, but it’s going to happen.
PIF is at a very attractive value right now, with a forward P/E of only 8.06, a 2 year PEG of 0.27 and a price to book of 0.94. With a one year price target of $19.90, analysts are predicting 71% upside for the renewable energy company in 2019. And with a 5 year estimated growth rate of 77.90% annually, the fact this stock is only trading at 8 times earnings is simply amazing.
There are a few warning signs for the company however, and it may not be for everyone. For starters, the company pays a very lucrative 5.41% dividend yield, but its payout ratio is 101.69%. Typically payout ratios this high signal an impending dividend cut, but it isn’t always the case.
The company also solely operates in Latin America. Whenever the bulk (or all) of a company’s operations are located in generally unstable jurisdictions, it doesn’t take much to rock the boat, and in turn the share price.
Equitable Group Inc (EQB.TO)
Ah, alternative lenders. Often thought of as a predatory industry, there are a lot of investors who simply avoid these stocks due to moral reasons. So, if your in that boat, you may shrug this lender off. But it may be a mistake.
There are a number of reasons why alternative lenders are on a rapid tear. For one, OSFI’s mortgage stress test has handicapped both borrowers and banks when it comes to giving mortgages. Having to qualify at a 5.32% benchmark has reduced the buying power of Canadians looking to purchase a home.
However, alternative lenders aren’t required to comply to OSFI’s stress test. And because of this, buyers are flocking to alternative lenders to get their dream home. The Globe and Mail reports that mortgages from alternative lenders have increased 67% year over year in Toronto, and private lenders accounted for nearly 7% of new mortgages in the GTA for the second quarter of 2018.
Equitable Group has continued to impress with its most recent earnings report. Both revenue and earnings beat analyst expectations, and the company’s earnings have increased over 25% year over year. The company’s return on equity also rose over 150 basis points to 15.9%.
Equitable bank is truly a triple threat.
The company provides significant growth, with a 5 year annual estimated growth rate of 24.40% and a 1 year estimated upside of nearly 21%.
Excellent value, trading at only 6.94 times earnings, a 2 year PEG of 0.79 and a price to book of 0.93.
And excellent dividend growth, with a 1.68% yield, 10.64% payout ratio and a three year dividend growth streak.
The company was also featured on my list of the best financial stocks to own, and should be one that investors are looking hard at.
EQB is current our number one stock in the country out of 360 stocks we grade and track here at Stocktrades.ca. Find out more about our top stock lists, which beat the TSX by 3% in January.