Amid the optimism over the encouraging announcements made by AstraZeneca, Pfizer, and Moderna on the vaccine against COVID-19, the Canadian equity markets have recouped most of their losses, with the S&P/TSX Composite Index trading just 0.3% lower for this year. However, some of the companies are still in the recovery phase and offer excellent buying opportunities. In this article, we will look at three such companies that have the potential to deliver superior returns over the long run.
BlackBerry
BlackBerry (TSX:BB)(NYSE:BB) has significant exposure to the automotive industry. The disruption caused by the pandemic on the sector had weighed heavily on the company’s stock price. However, the vaccine’s hope has led its stock price to rise over 26% for this month. Despite the recent surge, the company is trading at 9.6% lower for this year.
BlackBerry had reported better-than-expected performance in its August-ending quarter. With the restart of production in the automotive sector after the pandemic-infused shutdown, its BTS (BlackBerry Technology Solutions) segment showed some improvement in the second quarter compared to the first quarter’s lows. Meanwhile, the management projects that its BTS business would return to pre-pandemic levels early next year.
Moving to its cybersecurity business, BlackBerry had launched its Spark Suite platform in May. Since its launch, the platform has witnessed strong demand and has helped the company acquire several blue-chip clients. It had also introduced its Guard platform in the Managed Detect and Respond Services (MDR) segment in July. Frost & Sullivan’s estimate the MDR segment to reachUS$2 billion by 2024.
So, given its high growth prospects and its attractive forward enterprise value-to-sales multiple of 3.1, I expect BlackBerry to deliver superior returns over the next three years.
Pembina Pipeline
Investors are hopeful that the vaccine could return businesses and life to pre-pandemic ways. So, the vaccine hope has led to a rise in oil prices, which drove Pembina Pipeline’s (TSX:PPL)(NYSE:PBA) stock price. The company’s stock is up 14% for this month. However, it still trades close to 34% lower for this year and provides an excellent buying opportunity. Its valuation looks attractive with its forward price-to-earnings and a forward enterprise value-to-sales multiple standing at 14.7 and 4.3, respectively.
Meanwhile, the company is working on increasing the contribution from fee-based assets to over 90% from 85% in 2019, which would insulate its earnings from short-term fluctuations. These fee-based contracts reduce the impact of commodity price volatility on the company’s financials. In its recently announced third quarter, the company generated $796 million of adjusted EBITDA, despite the challenging environment.
Meanwhile, Pembina Pipeline’s management projects the company’s 2020 adjusted EBITDA to come between $3.25 billion to $3.30 billion. It also had access to the liquidity of $2.54 billion at the end of the third quarter. So, given its stable cash flows and healthy liquidity position, the company’s dividends are safe. Its dividend yield currently looks attractive at 7.9%.
Cineplex
The entertainment was hit hard this year amid the pandemic-infused restrictions. However, the encouraging news on the vaccine has brought some relief to the sector. Cineplex (TSX:CGX), which owns and operates 164 theatres across Canada, is up 75.6% for this month. Despite the surge in its stock price, Cineplex still trades close to 74% lower for this year amid high losses, increasing debt, and a fall in customer footfalls.
Currently, Cineplex has opened all its 1,687 screens across its 164 theatres but is operating them at limited capacity, as per the local government restrictions. The vaccine could encourage moviegoers to return to theatres and help the company operate at full capacity, supporting its fundamentals. Meanwhile, the company has also taken several cost-cutting initiatives to lower its losses and reduce its cash burn.
So, given the vaccine’s progress and its attractive enterprise value-to-sales multiple of 2.6, I am bullish on Cineplex.
