Analysts follow as many as 20 stocks, most of which are rated ‘buys’. Of those buys, an analyst has one or two special favourites seen as the best stocks to invest in now. Elvis Picardo is vice president of research as well as a portfolio manager for Global Securities in Vancouver. He names a REIT and a pure-play water technology stock as his ‘best buy’ picks.
High occupancy, a strong focus on sunny markets in the U.S., and ongoing portfolio upgrades have turned Elvis Picardo’s head with regards to Pure Multi-Family REIT LP (TSXV─RUF.UN (CAD)); (TSXV─RUF.U (USD)).
Mr. Picardo considers the REIT a ‘buy’ and sets a 12-month target price of $8 per unit.
Healthy rent growth at quality assets
Pure’s assets mainly consist of “garden-style”, class A apartment complexes boasting high-end amenities such as swimming pools and gyms. Most of its properties are in Texas, particularly the Dallas-Fort Worth area, but the company has expanded greatly in San Antonio in the past year.
Mr. Picardo says he finds Pure attractive because its properties are all located in U.S. markets with good growth prospects, noting that occupancy rates are typically around 98 or 99 per cent. Due to their high-end nature, he adds, “You can raise rents over time.”
For example, he notes that average rent per occupied property in Pure’s portfolio for at least 12 months rose 5.92 per cent year-over-year in the third quarter of 2015 and 5.7 per cent year-over-year in 2015’s second quarter.
According to the analyst, Pure started out with a portfolio made up of a mix of higher-end class A and generally older class B assets. Over the last two years, the company has sold off most of those properties and moved almost exclusively into class A properties.
Mr. Picardo also highlights the company’s management team as a source of confidence. He points to their experience in terms of both finding attractive properties to buy and integrating them into the rest of the REIT’s portfolio.
Pure currently offers a distribution yield of about 7.1 per cent.
(Disclosure: Global Securities participated in the recent financing of Pure Multi-Family.)
Xylem active in all types of water technology
The second of Mr. Picardo’s two best stocks to buy now is Xylem Inc. (NYSE─XYL), which he views as a unique business in a very promising field around the world.
The company is a pure-play water technology stock, which is exactly why it appealed to the analyst. According to Mr. Picardo, Xylem is involved with all aspects related to the life-sustaining liquid, including water treatment, flood control, water scarcity, and wastewater management. Its market capitalization is about US$6.6 billion and it enjoys a global presence.
Expected heavy investment by government to repair and replace aging water- and wastewater-related infrastructure bodes well for the company, the analyst adds.
“Water is going to be a growing concern in the years ahead. . . . We think (Xylem) is well-positioned to benefit from that trend,” he says.
Because of its unique focus on all things water, Xylem could be a potential takeover target within its field although there are no formal or rumored offers at the moment, Mr. Picardo says.
As such, he sets a conservative 12-month target price of $40 a share but says shares could move higher in the event of an offer.
Xylem’s dividend has risen 12 per cent annually over the last three years and 10 per cent over the last year.
Summer’s ‘best stocks to buy now’ hold up well
Mr. Picardo also follows up on his previous ‘best buy’ recommendations from last summer: Fortis Inc. (TSX─FTS) and Baxalta Inc. (NYSE─BXLT).
He says Fortis has performed relatively well since August. The stock price has declined 5.8 per cent year-to-date. However, the TSX Utilities Index is down 12.7 per cent and the TSX in general has fallen 11 per cent over the same period. “We still like the stock,” he says.
Nevertheless, Mr. Picardo concedes, “The one that has done really well is Baxalta. I think we pretty much picked the low at that point,” says Mr. Picardo.
In the ensuing months, prices have climbed up considerably, driven by a takeover bid from fellow pharmaceutical stock Shire PLC (LSE─SHP; NASDAQ─SHPG). Baxalta rejected that bid for being too low but Mr. Picardo is optimistic a deal can happen.
“Shire has publicly announced it is still interested in Baxalta, it’s just an issue of price. The rumour mill has a range of $50 but I‘d say Baxalta wouldn’t settle for anything less than the mid-$40s.”
Investor’s Digest of Canada, MPL Communications Inc.
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