Global Securities in Vancouver has picked the three best sectors of the economy that they say are built to last: network security, green energy, and infrastructure. Global’s research vice president Elvis Picardo picks one stock as the best stock to buy now from each sector.
Stock markets around the world pulled back at 2016’s start. Since then, most have made up some of the losses. Even so, the ups and downs are still dramatic enough to keep many would-be shareholders from buying in.
“There was too much attention being focused on the short term,” says Elvis Picardo, who is vice-president of research and a portfolio manager at Global Securities in Vancouver. He is also a frequent columnist in Investor’s Digest of Canada.
At the end of January, Mr. Picardo and his colleagues decided against trying to find quick-and-easy ways to profit from current volatility. Instead, they headed in the opposite direction, looking for companies working in economic sectors with healthy, “very long-term” potential that were trading at decent valuations. They turned up three segments of the economy that Mr. Picardo says are built to last: network security, green energy, and infrastructure.
Network security rallied in 2015, then faded
According to the analyst, the computer network security field boasted impressive share price gains in the middle of last year, but has since dropped sharply.
For instance, as of late January, the trading price of his first ‘Best Buys’ pick, Fortinet, Inc. (NASDAQ─FTNT), had plunged 46 per cent compared to the heights it reached last August.
Asked what caused the sector to fall, Mr. Picardo says: “I guess people had other things to worry about.” He points to the Shanghai Stock Exchange’s crash last August, which ignited widespread worries (and attendant headlines) about slowing growth in China that has since lingered, as a likely distraction.
Despite the shift in public attention, the analyst says he is confident that issues related to network security will remain at the forefront of business and consumer concerns. “It’s huge. There’s no reason to expect it to recede in the years ahead,” he says.
High-profile hacking incidents involving technology giants Sony in late 2014 and then Apple in 2015 (after the Shanghai crash) underlined the sector’s importance, Mr. Picardo adds. “Really, no one seems safe, right?”
Fortinet provides network security appliances and related security services to a variety of institutional and business clients.
Aside from its attractive trading price, Fortinet was the second-fastest growing supplier of security appliances in the third quarter of 2015, says Mr. Picardo. The company also holds a massive cash reserve of nearly US$1 billion, or more than US$5 a share.
Investors seek cleaner energy
The portfolio manager’s second selection, Innergex Renewable Energy Inc. (TSX─INE), is a rare Canadian player in the green energy sector. The company is involved in solar, wind and hydroelectric power projects.
“We like the utilities space because it’s defensive and has good dividend yields,” says Mr. Picardo.
Of course, not all utilities are created equal. In the last four or five years, investors have come to expect a green element from companies in the sector and avoided less environmentally-conscious counterparts, he explains.
“When people look at utilities, it’s not just enough to have solid cash flows,” says the analyst. “Some of the major coal-firing energy companies in Canada have been performing really, really badly.”
Building again after Quebec troubles
Mr. Picardo’s third ‘Best Buy’ is a major company in a field that many market-watchers expect to enjoy major investment in coming years, but nevertheless long attracted negative attention: infrastructure firm SNC-Lavalin Group Inc. (TSX─SNC).
“We think the stock is finally beginning to turn around,” says the portfolio manager.
SNC-Lavalin’s role in the Quebec corruption scandal prompted great uncertainty about its future. However, Mr. Picardo says of the company figures tied to the scandal: “They’ve been long gone.”
Meanwhile, the federal government has promised $60 billion in infrastructure investments over the next decade.
The analyst says SNC-Lavalin is compelling because of its exposure to the Canadian infrastructure sector. He adds that it also has the deepest pockets, best-in-class balance sheet, and very good diversification among domestic construction and engineering firms.
The company has a strong overseas presence as well.
Investor’s Digest of Canada, MPL Communications Inc.
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