For investor's sake, let's hope that Wellington West Capital's list of top picks for 2009, fares better than last year's version that declined on average more than 50%.
On Monday, Wellington West analysts joined forces to publish a group of nine stocks from five sectors that are expected to outperform their respective benchmark indices this year.
The analysts wrote:
These stocks generally represent companies with healthy balance sheets, modest reliance on new capital injections, and solid prospects for attractive earnings/cash flow growth and/or stable cash flow generation.
Based on price targets against current market prices, the return expected from these nine stocks on average in the next twelve months is equal to roughly 92%. The greatest return is expected from Iteration Energy Ltd. (OTC:ITXFF), a growing oil and gas exploration and production company with operations in Northeast B.C. and Alberta.
Analyst Kim Page said the company's current valuation "inadequately reflects top-tier management, robust execution, and assets." Mr. Page rates Iteration a "buy" with a C$4.50 target price, representing upside of roughly 206%.
Not to paint too rosy a picture, the Wellington West analysts added that these stocks will need to battle through overall market uncertainty and volatility as well as challenges to corporate earnings, at least through the first half of the year. In particular, they expressed a sobering outlook for the small cap space.
We suspect the issues that faced many small-cap stocks in 2008, namely low trading liquidity and above-average financing risk, will persist in the near-term, challenging out-sized gains for this subset of the market.
In 2008, Wellington West's top picks dropped 53% on average, compared with a 32% drop for the S&P/TSX Composite and a decline of 44% and 72% for the TSX Small Cap and Venture indices, respectively. Franco Nevada Corp. (FNNVF.PK), up 21% on the year, was the only stock on the list to net a positive return.
In addition to Iteration Energy, the 2009 list includes:
Ag Growth Income Fund, Alliance Grain Traders Income Fund, Breaker Energy Ltd. (OTC:BKRYF), Lake Shore Gold Corp. (OTC:LSGGF), San Gold Corp. (OTCQX:SGRCF), Western Goldfields Inc. (WGW), Student Transportation of America (OTC:SUDRF), Wi-Lan Inc. (OTC:WILIF).