Seniors housing and business software technology may make for an odd couple on anybody’s ‘best of anything’ list. But chartered financial analyst Christine Poole sees money to be made from the process of aging in both of these otherwise disparate businesses.
Despite the persistent prospect of a pullback in an ever-lengthening bull market, Toronto chartered financial analyst Christine Poole would prefer to accentuate the positive. Ms. Poole is CEO and managing director of GlobeInvest Capital Management Inc. Asked about her investing prognosis over the next one to two quarters, she says: “We’re constructive on markets.” Ms. Poole asserts that, generally speaking, market sentiment remains positive, and not just domestically, although she admits: “Obviously we can get a pullback at any time so that’s tough to call.” The analyst bases her optimistic outlook on the assumption that economic growth will translate into better earnings.
Ms. Poole says she expects overall Canadian corporate earnings to rise seven per cent year-over-year in 2017, closing the gap somewhat and supporting further share price increases. The analyst adds that she predicts earnings per share will rise 11.5 per cent comparing the same two periods, the highest change since 2011. “Even if you strip out energy, earnings are expected to grow 10 per cent,” she notes.
“Within Canada, we do like the Canadian banks quite a bit. They haven’t done very much with price performance this year,” even though they have delivered healthy earnings, according to the analyst. “They’ve come through the problems in the energy patch quite well,” she says. Ms. Poole also points out, “Given the fact that inflation is quite benign, the Bank of Canada is now growing rates,” another mark in favour of financiers.
Nevertheless, the analyst is not ready to fully dive back into the oil patch with her clients just quite yet. Ms. Poole says her firm is avoiding energy producers, although it is bullish on domestic pipeline companies such as Enbridge Inc. (TSX—ENB; NYSE—ENB) and TransCanada Corp. (TSX—TRP; NYSE—TRP) because of their lengthy order backlogs. Executive promises of steady dividend increases for the next five years or so add to their appeal. “We just feel their cash flow visibility is much higher in terms of projects they have in place” (compared to oil and gas producers) says the analyst.
Aside from those industries, Ms. Poole sees a bright future ahead for business technology consulting as well as seniors living and care, evidenced by her two ‘best buy’ selections, CGI Group Inc. (TSX—GIB.A; NYSE—GIB) and Chartwell Retirement Residences REIT (TSX—CSH.UN).
In both cases, aging is a key trend behind the analyst’s bullish position. CGI, based in Montreal, is a global technology stock that provides a full suite of outsourced IT services to clients.
Outsourcing makes up 55 per cent of company revenue, while it generates the rest through consulting. This tech stock does only about 15 per cent to 20 per cent of its business in Canada. The rest of its operations are in the US, Europe and Asia-Pacific.
The company is pursuing several paths toward growth. These include digitizing businesses’ existing processes and modernizing obsolete legacy systems, such as financial transaction technology; resisting cybersecurity threats; and connecting legacy systems to the outside world so they can be accessed remotely. CGI has continually expanded through acquisitions, but its organic growth is similarly impressive.
At present, its order backlog is $21 billion, on a revenue base of about $11 billion annually. The company added $2.7 billion in bookings last quarter, of which 47 per cent was new business, and the rest was extensions and renewals.
Healthcare stock a leader among seniors’ living and nursing care
Ms. Poole’s second ‘best buy’ is healthcare stock Chartwell Retirement Residences. Chartwell indirectly owns, manages and runs a range of seniors housing, from independent retirement homes to long-term care centres for residents who need extensive assistance. Its facilities are located in Ontario, Quebec, BC, and Alberta. The analyst predicts demand for retirement housing to grow with life expectancies and the senior population. Statistics Canada predicts that the number of people 75 and over will reach 5.5 million by 2036, compared to 2.5 million in 2016. About eight per cent of that demographic lives in seniors housing at present.
Ms. Poole adds that Chartwell would like to increase the occupancy of its existing facilities, from about 91.4 per cent to between 94 per cent and 95 per cent, and raise the proportion of people older than 75 living in seniors housing. She also points out that the top 15 retirement living companies in Canada hold only a 43 per cent market share. Chartwell, first in line, accounts for just 11 per cent. “There’s still a lot of room for consolidation,” she says.
This is an edited version of an article that was originally published for subscribers in the September 22, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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