Aecon Group Inc (ARE.TO)

(A Top Pick Aug 21/15. Up 55.76%.) He still likes this.

Expects this to go much, much higher although there is a bit of volatility to deal with in the meantime. Has a $25 target from here. If it gets above $19, a way we go. Dividend yield of 2.56%.

A beneficiary of very rich infrastructure spending at all government levels. Very strong backlog in their energy segment, where a lot of people are staying away because it is a big component of their business. They have nuclear opportunities such as the Darlington win last year. There are a lot of additional opportunities from Candu sites. Has a decent dividend with a very low payout ratio. He models 22% cash flow per share growth each and every year for the next couple of years. This is cheap, relative to its 5-year average. Dividend yield of 2.56%.

A construction/engineering group. They do very good work and have been around for a very long time. Very well managed. Their fortune is tied to how busy things are in the mining and energy space on one side, and the construction/engineering space. If the Canadian government is really going to accelerate the infrastructure program, this company will be benefiting quite a bit.

(Market Call Minute.) A great story. Infrastructure spending is improving. They’ve had some blowout quarters, and he thinks the best is still ahead of them if energy starts to rebound a little bit.

The stock has done well. With the whole infrastructure spending the government is proposing, it will be beneficial for all E & C companies. Some of this company’s end markets have been depressed, but this company has weathered through that.

(Market Call Minute.) This has gone up very high, but still cheap relative to its five-year average. Thinks there is a lot more in the tank.

A very consistent company over time, and construction is relatively consistent. This is all about their future book. They have debt outstanding. Sometimes the market gets really worried that they have debt, but he thinks it is a very solvent company. It seems hard for the company to grow dramatically, so in really bad times, he is able to buy the bonds with about an 8% yield. Any time the stock is $9-$10, it is interesting, but on a risk/reward basis, where he can buy the bond at 8% it is an incredible way to invest. He just sold his bonds which he felt were fully valued.

They do infrastructure building and lots of that is happening in Ontario. It is in an upward trend, broke to a new high and is outperforming the Toronto market. Stick with it.

Element Financial (EFN-T) or Aecon (ARE-T)? Two different things. One is a financial player and this one is involved in industrials, being a construction company. The company has started to turn itself around. If the Canadian government comes through with the $30 billion+ of infrastructure spending, this company should be able to get its fair share.

If you like the development area and you want to be in the Canadian side with a government that is much more interested in fiscal stimulation, subways to be built, etc. this is not a bad time. Thinks they are going to do extremely well.

If the world’s governments are going to do anything in the next 5 years, it is going to be infrastructure. He likes this play. His model price is $16, but he would love to get it back at $13.60, and he would be a buyer.

Sell Crombie (CRR.UN-T) and buy Aecon (ARE-T)? REITs have had a long time to be able to move higher and higher in terms of valuations. Probably not a bad time to be making a switch, but be careful of moving to Aecon because it has also moved considerably. You probably want to Buy this under $15, where the PE is about 14.3X on a forward earnings basis. This is going to be a direct beneficiary of infrastructure spending in Canada.

(Market Call Minute.) They are really levered heavily to spending in the Alberta region, which might get a bit of a lift off the fires. They need to get margins higher, and that has been a bit of a struggle.

One of those great Canadian names that is benefiting from that trend of becoming a $1 billion company. Have a massive backlog, which is up over 50% year-over-year. Valuation is reasonable at 6-6.5X EBITDA.