(Business Edge columnist Gyle Konotopetz regularly profiles the top three stock picks of some of Canada's most accomplished investment pros.)
FEATURED PRO: Mario Vachon is chief investment officer of Brownstone Asset Management (www.brownstoneam.com). The Calgary wealth-management firm's portfolio returned 26 per cent in 2004. Before joining Brownstone in 2004, Vachon was vice-president and portfolio manager with Phillips, Hager and North Investment Counsel with assets exceeding $1 billion.
Vachon's View: "We generally don't take big sectoral bets on the market. The only meaningful bet that we've got on the market is that we're almost always a little overweight on financials because they're fundamentally such good businesses. And we don't own any golds because we think fundamentally it's a very poor business.
"Overall, the financial stocks are not particularly expensive. The (price/earnings) multiples, considering where interest rates are, are still reasonably attractive, particularly for the insurers. We prefer the insurance companies to the banks right now. The Canadian insurance companies have decent growth prospects and have international operations while the Canadian banks, with the exception of ScotiaBank, don't have a whole heck of a lot going on outside of the country."
* Manulife Financial (TSX:MFC)
* Recent Price: $57.70.
* 52-Week Range: $49.35-$59.63.
* Snapshot: Manulife is a financial services company providing a range of financial protection products and wealth-management services.
* CEO: Dominic D'Alessandro.
* Head Office: Toronto.
* Vital Stats: Current Price/Earnings Ratio, 15.9; Revenue (last 12 mos), $27.2 billion; 5-Yr Revenue Growth, 11.5 per cent; Earnings (last 12 mos), $2.6 billion; 5-Yr Earnings Growth, 15.4 per cent; Market Cap, $46.56 billion; Shares Outstanding, 807 million; Dividend Yield, 2.2 per cent.
* Vachon's View: "Manulife is on the conservative end of our barbell. This is a very well-managed company with Dominic D'Alessandro as CEO. They have a proven track record of being able to acquire, integrate and build.
As opposed to the banks, which have more limited growth potential, Manulife has a couple of years of what looks to be relatively easy growth, partly because of the integration of John Hancock (a life insurance company that recently merged with Manulife)."
* Brownstone's Risk Rating: Low.
* Web Watch: www.manulife.com
* Chartwell Technology (TSX:CWH)
* Recent Price: $10.70.
* 52-Week Range: $2.75-$11.
* Snapshot: Chartwell designs and develops customized software for the online gaming industry.
* CEO: Darold Parken.
* Head Office: Calgary.
* Vital Stats: Current Price/Earnings Ratio, 38.2; Revenue (last 12 mos), $14.5 million; 5-Yr Revenue Growth, 61.6 per cent; Earnings (last 12 mos), $5 million; Market Cap, $198.81 million; Shares Outstanding, 18.6 million.
* Vachon's View: "This company has a lot of things putting wind in its sails. The Internet game space is growing, so by definition, they have a nice growth rate just on their existing customers. In addition, they keep winning new customers in their base business, which is the casino gaming business. Then, you can layer on top of that the addition of new products they've been unveiling on a consistent basis.
"They've recently announced the addition of a bingo client (bingo.com), they are relaunching their poker offering later this year and they demonstrated a kiosk product recently that looks like it could be very successful. When you put all that together, we think the growth rate should be sustainable for at least a couple more years."
* Brownstone's Risk Rating: Medium.
* Web Watch: www.chartwelltech.com
* Rentcash Inc. (TSX:RCS)
* Recent Price: $19.25.
* 52-Week Range: $14.20-$21.
* Snapshot: Rentcash owns and operates payday loan businesses and a rent-to-own furniture business under the Cash Store, Instaloans and Insta-Rent banners.
* CEO: Gordon Reykdal.
* Head Office: Edmonton.
* Vital Stats: Current Price/Earnings Ratio, 71.3; Revenue (past 12 mos), $40 million; Earnings (last 12 mos), $4.2 million; Market Cap, $332.22 million; Shares Outstanding, 17.3 million.
* Vachon's View: "They've been opening approximately six (payday loan) branches a month for quite a while. When you open a branch it loses money, but as you become larger as they have, the effect of opening new branches that are losing money gets to be much smaller than the profitability of the maturing operations. So their profitability is growing very rapidly.
"In their furniture rental business, they have a deal with The Brick to go into Brick and United Furniture Warehouse locations, and much the same thing is happening (as with the loan business) with the business maturing. That overall business should turn profitable within the next 12 months.
"When you put it all together, the company should grow considerably over the next four to six quarters. Finally, I think it's at the point now where it's generating a lot of free cashflow, which makes it a perfect income trust candidate. I would not be surprised if it (conversion to an income trust) happened within the next 12 months."
* Brownstone's Risk Rating: High.
* Web Watch: www.rentcash.ca Disclosure: Brownstone Asset Management owns shares in all three of the featured companies and Vachon personally owns shares in the companies as well. (This feature is presented for information purposes. Investors are advised to do their own research or consult a qualified investment professional before making investment decisions.)