John Zechner’s Must-Watch Stock Picks for October 2024

John Zechner, the chairman and founder of J. Zechner Associates, has earned a reputation for his deep insights into the North American large-cap market. His investment picks carry significant weight, particularly when markets are volatile. For October 2024, Zechner’s top selections are Veren (VRN-TSX), Lightspeed Commerce (LSPD-TSX), and Atkinsrealis Group (ATRL-TSX). These stocks reflect Zechner’s strategic focus on undervalued assets and companies with strong growth potential in a challenging economic environment.

Market Outlook: Navigating Uncertainty

Following the market’s rocky performance in August and a tentative recovery, September posed new challenges. The U.S. Federal Reserve’s aggressive rate cuts, however, reignited hopes of a soft landing for the economy. With inflation receding, the Fed’s moves have renewed investor optimism. As the third-quarter earnings season approaches, Zechner highlights the importance of these reports in sustaining stock market momentum.

While overall growth catalysts are limited, Zechner believes that lower interest rates will continue to support high-valuation stocks, especially in the technology and dividend-paying sectors. However, cyclical stocks in industries like industrials and consumer goods may face slower growth as economic headwinds persist.

Top Picks for October 2024

Zechner’s selection for October showcases a strategic balance of technology, services, and industrial sectors. Let’s dive into each company and understand why they are his top recommendations.

Veren (VRN-TSX): Poised for Long-Term Growth

Veren has emerged as a strong contender for investors seeking growth potential at a reasonable valuation. Despite recent underperformance, the company’s asset base has been completely overhauled since 2018, with 75% of its focus now on high-impact projects like Montney and Duvernay.

Zechner sees Veren as a company that has been overlooked by the market. With significant free cash flow growth, improved asset optimization, and modest financial leverage, Veren trades at just 2.8 times its operating cash flow—a valuation that Zechner believes is highly attractive for long-term investors.

Lightspeed Commerce (LSPD-TSX): A Strategic Shift Towards Growth

Lightspeed Commerce, known for its omnichannel point-of-sale (POS) software, caters to over 165,000 retail and hospitality businesses. The company’s recent shift in strategy aims to boost revenue growth and business execution as it heads into 2025. Zechner views Lightspeed as a major growth story that is still underappreciated by the market.

The company’s undervaluation compared to its peers has attracted attention. The recent engagement of JP Morgan to explore strategic alternatives, including a potential sale of the entire company, could unlock significant value. With Lightspeed currently trading at just 1.8 times EV/F2025E sales, compared to an industry average of 5.5 times, Zechner believes the company offers excellent growth potential.

Atkinsrealis Group (ATRL-TSX): A Revitalized Engineering Giant

Formerly known as SNC-Lavalin, Atkinsrealis Group is a professional services and project management firm with a strong presence in the engineering and nuclear sectors. Zechner sees Atkinsrealis as an undervalued gem in the Canadian market, particularly with its focus on engineering services, which account for 75% of its revenue. The nuclear segment, in particular, holds significant potential for growth.

Atkinsrealis’ top-line growth is supported by a robust project backlog and strong demand trends, while the management’s focus on margin expansion is expected to drive further revenue gains. Despite risks like potential cost overruns and market conditions, Zechner points out that Atkinsrealis is trading at a discount, with a valuation of 8.8 times 2024/2025 adjusted EBITDA, making it an appealing choice for investors seeking long-term value.

The Importance of Third-Quarter Earnings

With stocks trading near record-high valuations, Zechner stresses the critical role third-quarter earnings will play in sustaining market confidence. For high-growth sectors like technology, a strong performance will be necessary to justify elevated valuations. This is why companies like Lightspeed Commerce and Veren, which are both poised for growth, are key selections for the upcoming quarter.

In contrast, sectors such as industrials and consumer goods are likely to face slower earnings growth. Zechner advises caution in these areas, noting that companies with strong long-term fundamentals and undervaluation, such as Atkinsrealis, may still offer upside potential despite the broader sector challenges.

Why Technology Stocks and Dividend Payers Are Still Attractive

Despite the uncertain economic outlook, Zechner remains bullish on technology stocks. Companies with high growth potential, like Lightspeed Commerce, are expected to benefit from the low-interest-rate environment, which continues to support elevated stock valuations.

Dividend-paying sectors such as telecom, utilities, and energy also remain appealing for investors seeking stable income. As interest rates stay low, these sectors provide a reliable income stream while offering potential capital appreciation over the long term.

Conclusion: Zechner’s Picks for a Changing Market

John Zechner’s top picks—Veren, Lightspeed Commerce, and Atkinsrealis Group—reflect his strategy of focusing on undervalued stocks with strong growth potential in a market that remains volatile. As we approach the third-quarter earnings season and the end of 2024, these companies offer a balanced approach to navigating economic uncertainty, providing opportunities for both growth and income in a challenging market environment.