(Every week, Business Edge writer Gyle Konotopetz profiles the top three picks of one of Canada’s most successful investment pros.)

FEATURED PRO

Jason Donville, president and director of research, Calgary-based Lightyear Capital (www.lightyearcapital.com).

Donville’s Current Strategy:

“We’re still very much conscious on valuation and looking for high-return-on-equity companies. I still believe the small caps are going to outperform the large caps this year. That’s where we’re seeing the value. We think it’s going to be a choppy market and a stock-pickers’ market. Our belief is that if you pick the right stocks, you can get some significant outperformance relative to the indexes.”



FIRST STAR

* Home Capital Group (HCG.B-TSE)

* Recent Price: $12.50.

* 12-Month Range: $5.90-$12.05.

* Donville’s Call: Strong buy.

* 12-Month Target: $15.50.

* Snapshot: Home Capital provides conventional first mortgages to self-employed Canadians through its subsidiary, Home Trust Company. It also provides trust services, mortgage-backed securities and unsecured credit cards.

* CEO: Gerald Soloway.

* Head Office: Toronto (80 employees).

* Vital Stats: Price/Earnings Ratio, 12.8; Revenue (last 12 mos), $86.8 million; 5-Yr Revenue Growth, 23%; Profit (last 12 mos), $13.7 million; 5-Yr Profit Growth, 56.4%; Market Cap, $157.47 million; Shares Outstanding, 13.32 million; Dividend Yield, 0.8%.

* Donville’s Comment: “In the financial-services space of a half-billion-dollar market cap or less, Home Capital has the highest return on equity at about 25 per cent and yet the stock trades more or less in line on a price/earnings ratio with the sector. Their clients are specifically the self-employed and immigrants and those are two under-served segments of the market. The company has loan-loss provisions that are in line or lower than most of the major banks and really strong management. We think the stock has a lot more room to run. It also has a high probability, based on its market cap and trading volumes, of being added to the TSE 300 Index.”

* Donville’s Risk Rating: Low.

* Web watch: www.homecapital.com



SECOND STAR

* Canadian Western Bank (CWB-TSE)

* Recent Price: $29.11.

* 12-Month Range: $23.25-$30.50.

* Donville’s Call: Buy.

* 12-Month Target: $35.

* Snapshot: Canadian Western is a federally chartered Schedule 1 bank in the West and operates principally in personal and commercial banking. Its trust arm, Canadian Western Trust Company, offers self-directed retirement products, corporate trust services and commercial real-estate financing.

* CEO: Larry Pollock.

* Head Office: Edmonton (509 employees).

* Vital Stats: Price/Earnings Ratio, 11.2; Revenue (last 12 mos), $251.8 million; Profit (last 12 mos), $30 million; Market Cap, $367.39 million; Shares Outstanding, 12.56 million; Dividend Yield, 1.4%.

* Donville’s Comment: “This company has an outstanding track record of financial prudence. What attracts us to the stock right now is its valuation. It is trading at just 1.2 times price-to-book (ratio). The company is basically cashed up right now and is in the market for potential acquisitions. Currently, there are a lot of potential acquisitions available to it because of their cash position and because a number of eastern Canadian banks have indicated a willingness to part with some of their eastern assets in Western Canada. We also think the western Canadian economy is actually much better positioned than the rest of Canada.”

* Donville’s Risk Rating: Low.

* Web watch: www.cwbank.com



THIRD STAR

* Forzani Group (FGL-TSE)

* Recent Price: $14.78.

* 12-month Range: $4-$15.80.

* Donville’s Call: Buy.

* 12-Month Target: $21.

* Snapshot: Forzani Group is Canada’s largest retailer of sporting goods, including athletic, leisure and recreational footwear and apparel. Its retail operation is under five banners – Sport Chek, Forzani’s, Sports Experts, Coast Mountain Sports and Sport Mart.

* CEO: John Forzani.

* Head Office: Calgary (8,000 employees).

* Vital Stats: Price/Earnings Ratio, 23.3; Revenue (last 12 mos), $691.6 million; 5-Yr Revenue Growth, 15.9%; Profit (last 12 mos), $17.2 million; Market Cap, $402.32 million; Shares Outstanding, 27.0 million.

* Donville’s Comment: “This is a really exciting and fun story. These guys were almost out of business three years ago and John (Forzani) brought in a bunch of really outstanding managers and really turned this thing around. They’ve taken what was potentially a great platform and turned it into something that’s fantastic. They have 18 per cent of the sporting-goods market in Canada and they’re the category killer now which gives them all kinds of economies of scale, buying power and ability to move inventory around based on weather (i.e. ski equipment) and so on. That gives them a huge amount of muscle.”

* Donville’s Risk Rating: Medium.

* Web watch: www.forzanigroup.com

* Donville’s Record (Nov. 1 picks): +1% (Canadian Crude Separators +7%, Pason Systems +5%, Liquidation World -10%.

* Disclosure: Lightyear may hold positions in these stocks. Donville personally owns Home Capital Group stock.