(Every week, Business Edge columnist Gyle Konotopetz profiles the top three stock picks of one of Canada’s top investment pros.)
FEATURED PRO: Fred Pynn is vice-president of equities and portfolio manager at Bissett Investment Management (www.franklintempleton.ca/bissett). He has been at the firm since 1987.
Fund Form: Pynn manages the Bissett Canadian Equity Fund, which is down 15.5 per cent in the past 12 months (through April 30), slightly underperforming the group average of -14.7 per cent.
Pynn’s Perspective: “We’ve had a nice rebound, so I would expect there will probably be a bit of a cooling off in the market before too long. I don’t think we’re back in a bull market heyday, but I would still expect the (market indices) to finish the year higher than they are today. I also believe the U.S. economy will recover and I think the decline in the U.S. dollar is very positive for the U.S. economy long term.”
* Transcontinental Inc. (TCL.A-TSX)
* Recent Price: $18.51.
* 52-Week Range: $15.25-$21.50.
* Snapshot: Transcontinental recently changed its name and ticket symbol, but it’s business as usual for the former GTC Transcontinental. The company does commercial printing and publishing of periodicals such as The Hockey News and Elle. It also has stakes in weekly newspapers and interactive marketing.
* CEO: Remi Marcoux.
* Head Office: Montreal (10,367 employees).
* Vital Stats: Current Price/Earnings Ratio, 12.6; Revenue (last 12 mos), $1.8 billion; 5-Yr Revenue Growth, 8.4%; Profit (last 12 mos), $127.7 million; 5-Yr Profit Growth, 15.1%; Market Cap, $1.3 billion; Shares Outstanding, 70.48 million; Dividend Yield, 0.76%.
* Pynn’s View: “The company has an excellent track record for growth and they’re well diversified with printing and publishing divisions. Because it’s a smaller company and the founder owns a lot of stock, there’s not a lot of liquidity so it gets forgotten about, which explains why the stock is so cheap.
“Over time, I think the (price/earnings) multiple can move from 10 times earnings to 15 times earnings, so you’ve got a chance at a double whammy in the stock price.”
* Pynn’s Risk Rating: Medium.
* Web watch: www.transcontinental-gtc.com
* Molson (MOL.A-TSX)
* Recent Price: $34.15.
* 52-Week Range: $26-$39.75.
* Snapshot: Molson has five breweries in Canada, one thumbs up from beer pitcher Don Cherry and is cutting into the U.S. and Brazilian beer markets.
* CEO: Daniel O’Neill.
* Head Office: Montreal (5,900 employees).
* Vital Stats: Current Price/Earnings ratio, 13.9; Revenue (last 12 mos), $3.5 billion; 5-Yr Revenue Growth, 15.2%; Profit (last 12 mos), $312.4 million; Market Cap, $3.58 billion; Shares Outstanding, 104.7 million; Dividend Yield, 1.64%.
* Pynn’s View: “The company continues to cut costs in Canada and that has really improved their profitability over the past several years. I also like the fact that the pricing environment in Canada is firming and that can have a huge impact, because any price increase basically goes right to the bottom line.
“They have also stabilized their situation in the U.S. where they’ve gotten out of a poor agreement with Miller and they’re now in a better agreement with Coors in the U.S. They’re also now the second-largest brewer in Brazil, with about 15 per cent of the market in that country. The Brazilian market is much larger and faster growing than the Canadian beer market.”
* Pynn’s Risk Rating: Low.
* Web watch: www.molson.com
* Home Capital Group (HCG.B-TSX)
* Recent Price: $18.43.
* 52-Week Range: $10.90-$18.50.
* Snapshot: Home Capital Group is a holding company that provides financial services such as mortgage lending and credit card issuing to niche markets through its subsidiary, Home Trust Company.
* CEO: Gerald Soloway.
* Head Office: Toronto (164 employees).
* Vital Stats: Current Price/Earnings Ratio, 14.0; Revenue (last 12 mos), $119 million; 5-Yr Revenue Growth, 26.3%; Profit (last 12 mos), $21.9 million; 5-Yr Profit Growth, 32.8%; Market Cap, $285.37 million; Shares Outstanding, 15.48 million; Dividend Yield, 0.65%.
* Pynn’s View: “This is a great growth story because they specialize in mortgage lending for people who do not normally qualify with the banks, and their customers are not people with credit problems. They also have deals with a couple of the major banks where they get referrals from those banks of people who are turned down.
“Currently, they have just over $1 billion in mortgages, but they think the ultimate market size in Canada for them will be between $50 billion and $100 billion. Their primary market has been in southern Ontario, but they’re expanding and recently opened offices in Calgary and Halifax.”
* Pynn’s Risk Rating: Medium.
* Web watch: www.homecapital.com
* Pynn’s Edge Record (18 picks): +8.4%. Best Pick: Biovail (BVF-TSX) +73.2. Worst Pick: CAE (CAE-TSX) -46.3%.
* Disclosure: Pynn says he may own the funds in which the featured stocks are held.