RBC names the Canadian stocks set to ‘materially outperform’ in the next 12 months — here are 8 on its conviction list

Published Mon, Aug 21 20237:52 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Royal Bank of Canada named a raft of stocks it expects to "materially outperform" over the next 12 months. Its picks are in sectors from health to software and are named on the bank's list of small-cap conviction list stocks. On average, stocks on RBC's list saw average returns of 7.3% between June 30 and Aug. 15, beating the S & P Toronto Stock Exchange Small Cap Index by 5 percentage points, according to the bank in a research note dated Aug. 17. Canada's largest vitamin supplement company Jamieson Wellness is a pick for RBC due to its "strong growth" forecast for 2023 and expansion into the U.S. and China, while dental practice group Dentalcorp has a "significant whitespace opportunity," the analysts wrote. The stock is currently trading at a discount to U.S. and Canadian peers, the bank added. Call center software company Enghouse Systems is rated outperform, partly due to its acquisition of video conferencing firm Lifesize, with the bank forecasting earnings per share (EPS) to jump 15% as a result. "Enghouse has created significant shareholder value through acquisitions; in the past, Enghouse's valuation has expanded when the pace of acquisitions has improved," the analysts wrote. Fiber optic sensor manufacturer OpSens is a pick for the bank for SavvyWire, a product used during cardiology procedures, which RBC described as a "significant opportunity." 'Compelling' and 'sustainable' Lumber producer Interfor is on RBC's list for its "compelling" valuation. "On just about every key valuation metric, including on Trend EBITDA and a capacity basis, Interfor is trading at very low levels," the analysts wrote. The bank expects U.S. lumber prices to increase significantly, and said the timeframe for this could be one to three years. Ontario-based airline Cargojet has "sustainable" margin upside, RBC said. The bank expects cargo volumes to increase but said it is "uncertain" of when they will, adding: "We view an uptick in demand as an important catalyst for the shares reflecting growing revenue." Data company Copperleaf Technologies is a pick for the bank due to its recent endorsement by software firm SAP , which RBC says is likely to increase sales. "Our outperform thesis reflects our view that Copperleaf's valuation doesn't reflect a sticky customer base, a large and unpenetrated market opportunity, and attractive unit economics and growth profile," the bank added. Building materials group Doman is also on RBC's conviction list. The company's management "anticipates aging housing supply along with work-from-home trends will help to offset the impact of heightened interest rates," RBC's analysts wrote.