Stephen Takacsy Highlights Quarterhill, Pollard Banknote, and AG Growth

Stephen Takacsy, the highly regarded head of Lester Asset Management, is known for his strategic approach to Canadian equities. His deep understanding of the market and forward-thinking mindset has made him a trusted name in asset management. With the release of his top picks for September 2024, Takacsy shares insights into his market outlook and highlights three companies he believes are poised for substantial growth: Quarterhill (QTRH), Pollard Banknote (PBL), and AG Growth (AFN).

Market Outlook

The global economy has been in a state of flux, but Takacsy maintains a positive outlook for both stocks and bonds. Despite challenges, including rising shelter costs and a housing shortage exacerbated by high immigration rates, inflation is expected to continue its decline, reaching the Bank of Canada’s target rate of 2%. In fact, Canada already witnessed a deflationary period in August 2024.

Takacsy believes that the aggressive interest rate hikes from central banks, while initially seen as detrimental, are now contributing to a stronger bond market. In particular, the Canadian fixed income market has surged, with returns exceeding 14% over the last year. Small and mid-cap stocks in Canada, often overlooked by institutional investors, represent significant value and have rarely been as affordable as they are today.

In a market where the consumer is slowing down, careful stock selection is crucial. While the economy may appear sluggish, selective investments in the right sectors can still yield positive results. Takacsy’s top picks focus on companies that are well-positioned to weather the current economic climate and emerge even stronger in the coming years.

Top Picks Overview

Takacsy’s top stock picks are Quarterhill, Pollard Banknote, and AG Growth. These companies span a range of industries, from technology and infrastructure to gaming and agriculture. Each of these companies brings unique strengths to the table, making them standout options in the Canadian equity landscape.

Top Pick 1: Quarterhill (QTRH TSX)

Quarterhill is a leader in Intelligent Transportation Systems (ITS), specializing in electronic tolling, traffic enforcement, and data collection technologies. Governments across the globe are increasingly seeking ways to generate revenue through road use, making Quarterhill’s services more essential than ever. The company has a robust $500 million backlog and is on the cusp of launching AI tools to further capitalize on its data collection capabilities. This makes Quarterhill an attractive investment for those looking to capitalize on advancements in infrastructure technology.

Though Quarterhill’s shares have been under pressure recently due to some low-margin projects, Takacsy sees this as a short-term issue. The company is expected to see significant improvements in revenue as higher-margin projects come online in the next few quarters. The management team has shown its confidence in the company’s future, with substantial insider stock purchases over the past year. Takacsy believes that Quarterhill’s shares will reach $2 by the end of 2024, with a potential takeover pushing the price to between $3 and $4 within the next few years.

Top Pick 2: Pollard Banknote (PBL TSX)

Pollard Banknote is the world’s second-largest supplier of instant lottery tickets and a leader in the rapidly growing iLottery sector. The company operates in a highly concentrated market, with only three major players controlling the supply of printed lottery tickets in North America and Europe. This creates significant barriers to entry, making Pollard a reliable player in the lottery industry.

Pollard’s shares have been volatile due to inflation pressures on the costs of key inputs like paper and ink. However, with contract renewals now reflecting higher prices, the company is poised for significant margin improvement. Despite losing a major iLottery contract, Pollard’s newer technology is positioning the company for future wins, including a recent contract with the state of Kansas. With shares currently trading in the mid $20s, Takacsy sees this as a buying opportunity, with the potential for the stock to rebound to over $40 in the future.

Top Pick 3: AG Growth (AFN TSX)

AG Growth is a leading manufacturer of grain, fertilizer, and commodity handling systems, catering to the agriculture industry worldwide. With a record $300 million in EBITDA projected for 2024, AG Growth is poised for another year of growth. The company’s international expansion, particularly in markets like Brazil, India, and Eastern Europe, ensures continued demand for its products.

AG Growth’s financials are strong, with significant free cash flow and a rapid deleveraging process underway. The stock is trading at a bargain, at less than seven times forward EBITDA, and has garnered interest from potential acquirers. Takacsy believes the company is worth over $85 per share, with a takeover likely on the horizon.

Why These Stocks Stand Out

Quarterhill, Pollard Banknote, and AG Growth represent different sectors of the economy, but all three are poised for substantial growth. Whether through technological innovation, market dominance, or international expansion, each company has a unique value proposition that sets it apart in a competitive market.

Conclusion

Stephen Takacsy’s top picks reflect his deep understanding of the Canadian market and his ability to identify stocks with strong growth potential. Quarterhill’s leadership in transportation technology, Pollard Banknote’s position in the lottery industry, and AG Growth’s dominance in agricultural infrastructure make these stocks standout choices for investors looking for long-term gains.