The novel coronavirus pandemic triggered a sharp correction in equities earlier this year. However, with expansionary monetary policies supporting growth and providing liquidity, stocks surged. Markets also were optimistic about potential policies from Presidential-elect Joe Biden. With trade relations likely to improve under Biden, it’s a good time to focus on some Chinese and Canadian stocks.
The current year has been a mixed bag for Canadian stocks listed in the U.S. exchanges.
This column will focus on four Canadian stocks that have out-performed in the last one year. I believe that these stocks will remain in focus in the coming year and can out-perform the key indices in the U.S.
Let’s look at the following Canadian stocks:
- Shopify (NYSE:SHOP)
- Lululemon Athletica (NASDAQ:LULU)
- Pan American Silver (NASDAQ:PAAS)
- Electrameccanica Vehicles (NASDAQ:SOLO)
Canadian Stocks: Shopify (SHOP)
Among Canadian stocks, there is no doubt that SHOP stock is an out-performer. For year-to-date fiscal year 2020, the stock surged by 165%. With the company on a high growth trajectory, the stock remained resilient at higher levels.
For the third quarter of 2020, Shopify reported revenue of $767.4 million, which was higher by 96% on a year-on-year basis. Importantly, the company’s monthly recurring revenue continued to grow at a healthy pace.
Another important factor is that the company’s combined revenue from all previous cohorts has also grown consistently. As business grows for merchants, subscription upgrades translated into higher cash flows from existing customers.
Therefore, the business model is attractive at a time when shift to online marketplace has accelerated. Shopify also focused on international expansion and as the total addressable market expands, I expect top-line growth to remain strong.
From a financial perspective, the company reported cash and equivalents of $6.1 billion. In addition, with improving operating leverage, I expect operating cash flows increase in the coming years. This will allow the company to continue aggressive investments in growth and research and development.
Overall, investors can consider gradual exposure to SHOP stock. I would be happy if the stock declines by 15% to 20%. That would provide an attractive entry opportunity.
Lululemon Athletica (LULU)
LULU stock is also among the Canadian stocks that outperformed in the current year with an upside of 60%. Even after a decent rally, BTIG analyst Camilo Lyon has a price target of $449 for the stock. This would imply an upside of 21% from current levels of $370.
Lululemon is a provider of athletic apparels for yoga, running, training, among others. For Q2 2020, the company reported revenue of $902.9 million, which was higher by 2% on a year-on-year basis. Top-line growth was impacted by the pandemic as company-operated store revenue declined by 51%. However, e-commerce growth was the silver lining in the results. For Q2 2020, online sales were $554.3 million, which was higher by 155% on a YOY basis.
Further, 97% of the company’s stores re-opened as of September 2020. With Lululemon having 506 stores globally, growth can gain traction in the coming year as pandemic headwinds decline. It’s therefore a good time to remain invested in LULU stock.
I would like to add here that 15 new stores opened in Q2 2020. Of this, seven company-operated stores were opened in Asia. I believe that focus on emerging markets is likely to deliver sustained long-term growth for Lululemon.
Pan American Silver (PAAS)
PAAS stock is another attractive name among Canadian Stocks that delivered healthy returns in the last year.
The pandemic triggered a global recession and the response from central banks was through expansionary monetary policies. The Federal Reserve committed to keep interest rates near-zero levels through FY2023. This would translate into ample liquidity in the financial system. This is good news for hard assets like gold and silver. This is the key reason to remain bullish on Pan American Silver even for the coming year.
For the most recent quarter, Pan American reported an all-in-sustaining-cost of $1,057 an ounce for gold. With gold trading above $1,850 an ounce, I expect healthy EBITDA and cash flows to sustain. The company is positioned to deliver $450 to $500 million in operating cash flows for the current year.
PAAS stock also offers an annual dividend of 28 cents and I expect dividends to increase in the coming year if gold bounces back after the recent correction. It’s very likely that the precious metal will trade above $2,000 an ounce in FY2021.
PAAS stock consolidated in the last few months and it’s a good entry opportunity with a time horizon of 12 to 24 months.
Electrameccanica Vehicles (SOLO)
SOLO stock is another name that deserves a mention among Canadian stocks that have been out-performers. For the current year, the stock surged by 256%.
Be it Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO), the electric vehicle stocks were in limelight through the year. Electrameccanica is another name that can make it big in the EV market. As an overview, Electrameccanica is a development-stage electric vehicle. The company’s first EV is branded as Solo, which is a single-seat vehicle.
With the company targeting early next year for initial delivery of vehicles, the next 12 months can be interesting. If the market response is strong, the stock is likely to surge further. It’s also worth noting that the company is pursuing an asset-light model. The manufacturing is with strategic partners. Electrameccanica already has the capability to manufacture 20,000 Solos on an annual basis.
Besides Solo, the company has another model under development. Tofino is an all-electric, two-seater roadster. Therefore, the pipeline is attractive for the next 12 to 24 months. This will keep SOLO stock in limelight.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.