Rosenberg’s picks for the year’s second half, oil patch candidates as conflict eases in the Middle East and more from The Week in Stocks.

Stock of the week: Aecon Group Inc.

Shares of Aecon Group Inc. (ARE:TSX) jumped 17 per cent this week as the builder emerged a winner on news Thursday that the Greenlight Electricity Centre power plant located near Edmonton received the go-ahead. Raymond James analyst Frederic Bastien hiked his price target for Aecon to $60 from $51 and upgraded its shares to outperform from market perform after the Toronto-based construction and infrastructure development company was selected via a consortium in which it holds a majority stake to build the 932-megawatt power generation project that is slated to supply the needs of an as-yet-to-be constructed data centre, reportedly linked to Meta Platforms Inc. Shares closed Friday at $51.51. Aecon’s share of the work is estimated at $1.7 billion of the total current project cost of $4.6 billion, with Bastien adding in a note on July 3 that the contract represents “the most significant power infrastructure opportunity set for Aecon in our more than two decades covering the stock.” Construction of the facility is expected to start in the third quarter and could add $450 million in revenue annually during peak construction years of 2027 to 2029, TD Cowen analyst Michael Tupholme said in a note on July 2. Tupholme, who maintained his price target of $61 for Aecon, estimated that the Greenlight project alone could boost the stock price by $8. The analyst said that Aecon has historically traded at a discount to its peers and that the market was not giving Aecon “enough credit for data-centre related opportunities.” Aecon has a 12-month price target of $54.18 based on the calls of 11 analysts, according to Bloomberg.

Rosenberg on what’s got legs in the year’s second half

With the first half of the year in the rearview mirror, David Rosenberg , president of Rosenberg Research & Associates Inc., revisited some calls to see which ones still have legs as the second half gets underway. Despite the Middle East war and the accompanying oil price shock fading as an immediate threat, Rosenberg said he thinks renewable energy continues to have room to grow, especially as the Iran conflict reinforced energy security as an immediate concern in Europe and Asia. “Geopolitical risk has not derailed the renewable-energy and critical-infrastructure themes. If anything, it has strengthened them,” Rosenberg said. The company’s model portfolio holds these two clean-energy and renewables technology exchange-traded funds: the iShares Energy Storage & Materials ETF (IBAT) and the iShares Global Clean Energy ETF (ICLN). They are up 48.4 per cent and 18.7 per cent year-to-date as of June 26, respectively. They have recently lost some momentum, but Rosenberg said the investing theme remains “resilient.” On the cybersecurity trade, which at one point got caught up in the overall software selloff, Rosenberg said it proved to be a good call, with Global X Cybersecurity ETF (BUG) up nearly 40 per cent from the end of March. Rosenberg expects the trade “provides long-run potential as the threat of cyberattacks continue to grow in the new AI age.” Finally, Canadian banks blew past the competition with the S&P/TSX composite banking index outgaining the S&P 500 and European bank indexes by 19 and 15 percentage points, respectively. “While valuations (for Canadian banks) are stretched relative to the historical record, the profitability, low leverage and high dividend growth make the story appealing,” he said, adding that another tailwind emerged after the Office of the Superintendent of Financial Institutions cut the capital buffer the banks must hold to absorb losses during downturns.

As Iran conflict eases, Scotiabank makes its top picks in Canada’s oil patch

Oil prices have nearly fallen back to where they were prior to the outbreak of the Iran conflict. Despite that and a recent energy stock selloff, Scotiabank Global Equity Research analyst Kevin Fisk still thinks there’s a case to be made for the shares of Canadian producers bolstered by a weaker loonie, a tighter price differential between Canada’s benchmark and the West Texas Intermediate benchmark used in the United States, as well as the need to replenish global oil stockpiles. “One of the key takeaways is our overriding preference for large-cap equities in the current environment,” Fisk said in a note on June 29, tapping Cenovus Energy Inc. , (CVE:TSX), Suncor Energy Inc. , (SU:TSX) and natural gas producer Advantage Energy Inc. (AAV:TSX) as his top three picks. Cenovus has plenty going for it including producing some of the “lowest-cost” thermal bitumen via its steam-assisted gravity drainage process and improving U.S. refining margins, which he said hung over the stock. “We expect Cenovus to deliver a multi-year free-cash-flow inflection,” resulting in 100 per cent of excess free cash flow being returned via buybacks. Suncor is transitioning toward thermal production, which Fisk called “nothing short of remarkable.” Meanwhile, the oil sands giant is already returning 100 per cent of excess free cash flow to shareholders and the company has a new three-year plan — after hitting the targets in its previous plan — with additional production growth and lower corporate break-evens. The third, “Advantage remains the most undervalued Canadian natural gas producer,” Fisk said. But, he is looking for a turnaround with large-scale capital spending behind the company, and now expects Advantage to resume “meaningful” share buybacks.

Price target hikes and holds

  • Raymond James analyst Michael Freeman hiked his price target for DRI Healthcare Trust (DHT/U:TSX) to $23.50 from $22.50 on the expectation of royalty income from the U.S. Federal Drug Administration approval of a new drug to treat thyroid eye disease. Shares closed Friday at $19.32.
  • TD Cowen analyst Vince Valentini hiked his price target for Quebecor Inc. (QBR/B:TSX) to $78 from $69 on expectations of an increase in wireless subscriptions, rising annual revenue per user and revenue growth in wireless and internet services when the telco reports second quarter results. Shares closed Friday at $68.83.
  • TD Cowen analyst David Kwan maintained his price target of $39 for Lumine Group Inc. (LMN:TSX) after it announced a third large acquisition this week that Kwan said should help the company meet its 20-30 per cent target for growth this year. Shares closed Friday at $22.
  • CIBC Capital Markets analyst Kevin Chiang hiked his price targets for logistics and transportation companies TFI International Inc. (TFII:TSX) and Mullen Group Ltd.(MTL:TSX) to $244 from $222 and to $22 from $20, respectively, on the expectation of a “more positive tone this earnings season regarding the health of the freight cycle.” Shares of the companies closed Friday at $200.65 and $21.43, respectively.
  • CIBC Capital Markets analyst Paul Holden raised his price target for EQB Inc. (EQB:TSX) to $151 from $116 after the bank closed its acquisition of PC Financial. Shares closed Friday at $139.15.
  • National Bank of Canada Capital Markets analyst Don DeMarco hiked his price target for Wesdome Gold Mines Ltd. (WDO:TSX) to $37 from $34 on mine life extension and dividend/share buyback. Shares closed Friday at $28.26.

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