Caisse de Dépôt Likes These 3 Stocks: Should You?

Caisse de dépôt et placement du Québec announced June 20 that it was buying two million subordinate voting shares of Montréal-based Stingray Digital Group Inc. (TSX: RAY.A)(TSX:RAY.B) for $14.2 million. It’s not a big investment by the pension fund manager’s standards—it manages $248 billion in assets for pension funds in Québec. The move increased its ownership stake in the digital music and video service by more than 500%, suggesting that now is the time to buy its stock.

Montréal-based Stingray delivered outstanding fourth-quarter and fiscal 2016 results.

Revenues in its fourth quarter increased 31% to $25.7 million, while generating adjusted EBITDA of $8.2 million, a 6.3% increase over Q1 2015. On the year, Stingray’s revenues increased 27% to a record $89.9 million and an adjusted EBITDA of $31.0 million, which is also a record. The best part of its results are its recurring revenues, which increased 22.1% in fiscal 2016 to $77.6 million, or 86% of its overall revenue.

Businesses kill for this kind of consistent revenue generation. Investors seek out companies like this because they’re a delight to own. That’s why Caisse upped its stake. However, most investors will probably shy away from Stingray because of its size. If you can look beyond its tiny market cap of less than $300 million, Caisse’s endorsement is meaningful.

Who else does Caisse like that’s based in Québec? Two large caps come to mind.

The first is Alimentation Couche-Tard Inc. (TSX:ATD.B). Caisse owns almost 27 million shares in the convenience store operator. Those holdings are currently valued at $1.4 billion–one of the few investments among the hundreds of holdings listed in its 2015 annual report over the billion-dollar mark.

Why do they like it?

Probably for the same reasons I do. It knows how to buy, integrate, and operate convenience stores in all parts of the world. More importantly, it’s one of the best at quickly deleveraging after big M&A deals, and that’s a big plus for investors concerned about debt. Alain Bouchard and the rest of the team in Montreal know how to operate this particular type of business better than almost anyone on the planet.

Recently, I wrote an article about how its stock is down year-to-date and quite possibly headed for its first annual decline since 2008, but its ability to integrate acquisitions, along with its move to one brand—Circle K—around the world should provide it with even more synergies than it already possesses. While down, it’s definitely not out.

The other large cap Caisse likes is CGI Group, Inc. (TSX: GIB.A)(NYSE: GIB), a $16 billion company that plies its trade in the highly competitive IT field. Critically important is the fact CGI also happens to be the pension fund manager’s biggest holding at $3.2 billion. That’s an endorsement of the Montréal-based company because the next largest position is around $1.8 billion, or almost half CGI.

I don’t know a lot about CGI, which should indicate my level of ignorance when it comes to technology stocks.

However, Fool contributor Karen Thomas does. Recently, Thomas highlighted three good reasons to buy CGI’s stock. She feels the company has barely scratched the surface in Asia, where its second-quarter revenue increased by 11.6%. With Asia accounting for just 5% of the company’s overall revenue in Q2, investors can expect to hear more from this segment of its business.

Add to this improving margins, organic growth, a bigger backlog and a strong outlook for the rest of fiscal 2016, and it looks as though Caisse will be richly rewarded for its heavy weighting in CGI.

These are but three of the stocks Caisse likes. Have a look at its 2015 annual report to find more gems in their massive portfolio.