Jesse Gamble Top Picks for Jan. 28, 2025

Jesse Gamble, senior vice president and portfolio manager, Donville Kent Asset Management FOCUS: Canadian growth stocks

Top picks: Zedcor, Enterprise Group, Cipher Pharmaceuticals

MARKET OUTLOOK:

For every negative, one can point to a positive in today’s macro environment. Rates are now going in the right direction and there’s strong secular growth in certain industries. Stocks aren’t as cheap as they were a year ago but there are still pockets of value, especially in the small and mid cap space. That being said, political turmoil will increase day to day volatility with back and forth on tariffs, but less government regulation and lower taxes are good for investments.

Investors need to remember that the stock market is not the economy. Reported earnings growth is set to increase substantially versus the last couple of years and the direction of earnings is the largest driver of the direction of the stock market. Canadian stocks specifically trade at a significant discount to their American peers. The discrepancy is even larger in the small and mid cap space.

The U.S. small-business confidence surged to the highest level in nearly three and a half years in November amid post-election euphoria. The 41-point improvement for business outlook in the U.S. was the biggest monthly rise since 1986. The election, peak inflation, declining rates, and now a return of optimism leads us to believe the return of small caps is upon us. We believe we’re now one year into the next five-to-seven-year cycle for small caps.

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TOP PICKS:

Zedcor (ZDC CVE)

Zedcor is an extremely high growth and highly profitable company with a long runway for growth. Its security towers are the highest quality on the market, and it provides the best service with its in-house monitoring. From our calculations, each tower has an IRR over 40 per cent and Zedcor has the infrastructure and demand to grow from 1,300 towers now to well over 12,000 towers in the foreseeable future.

Enterprise Group (E TSX)

Enterprise Group has been around for a long time, but their new Evolution Power Products division was established in 2022 and is driving significant growth and profits. Its natural gas turbines allow the producers to tap-in to its own natural gas which saves it thousands of litres in diesel costs per day, plus the turbines are more reliable and significantly reduce pollution. The natural gas market is changing in 2025. Canada will have the pipelines to sell gas to Asia for the first time plus Canada is becoming a prime destination for data centers, with many being powered off-grid by natural gas.

Cipher Pharmaceuticals (CPH TSX)

Cipher Pharmaceuticals recently went through a series of changes and now has a revamped management team which is led by a CEO who has returned and owns more than 40 per cent of the stock. In 2024 it acquired Natroba which gives them a U.S. salesforce plus multiple established products that can be expanded into other geographies. The business is growing well and highly profitable and we think this management team will be great capital allocators for years to come.