Growth is the name of the game for Alex Lane, a portfolio manager with Dynamic Funds. He wants his companies to be more profitable than their industry peers, have faster-than-market earnings growth and “visible and predictable” overall business growth, and generate strong free cash flow.
While he tends to hold his core stocks for three to five years, he also hunts for short-term opportunities where growth is accelerating quickly. It’s hard to find companies in Canada’s limited market, he says, but he is seeing opportunities in industrials, technology, health care and consumer discretionary. The Dynamic Power Canadian Growth Fund, which Lane manages, has a three-year annualized return of 19.4%, according to Morningstar.
Element Financial Corp. (TSX: EFN)
1-yr. total return: 37.7%
This Toronto business may be classified as a financial sector stock, but it’s not like the banks or insurance companies that dominate this industry. Element is an asset-based financing company; it helps firms pay for equipment, airplanes and rail cars. While Q1 revenues climbed 181% year-over-year, and its stock price is up 183% since May 2012, Lane thinks its best days are ahead. In April, GE said it wants to sell off GE Capital, which is Element’s biggest competitor. The company should be able to bolster its market position, either by buying some of GE Capital’s assets (which it has done in the past) or just taking advantage of reduced competition.
DH Corp. (TSX: DH)
1-yr. total return: 31.6%
This Toronto-based business has also gone through a name change—investors may remember it better as Davis + Henderson. That slight alteration was a small part of a big plan to turn the company from a cheque-processing business into a global financial technology operation. It now offers institutions tech tools for mortgage lending, credit card processing, cyberfraud and more. “Its transformation has been remarkable,” says Lane. Just 45% of its business is in Canada, he says, down from 95% three years ago. DH is also acquiring; in March it bought a New York–based payment solutions company for US$1.25 billion in cash.
Restaurant Brands International Inc. (TSX: QSR)
1-yr. total return: N/A
This company’s name doesn’t conjure patriotic feelings and coffee cravings, but it should: the Oakville, Ont., operation is the new Tim Hortons, merged with Burger King. Since it started trading in December, it’s already up nearly 30%. The company is one of the largest quick-service franchise businesses in the world, with US$23 billion in global sales and 19,000 restaurants. Lane thinks 3G Capital, the firm that spearheaded the deal, can turn Tims into a global business. With strong cash flows and EBITDA growth of about 18% year-over-year in Q1 2015, Lane thinks this stock could rise to $65 by 2017.