Canada’s economy is weak and consumer confidence is lagging, but people still need to eat, drink and buy gas to get to around. Thanks to lower oil prices, consumers have a little bit of extra spending money,   but may feel less inclined to buy big-ticket items at a time when the country’s household-debt-to-income is at a record high. That’s why Canaccord Genuity is favouring consumer staple stocks over consumer discretionary in 2016.

Analyst Derek Dley has released his “Best Ideas for 2016” list, which includes his favourite picks in the consumer staples sector: Convenience store operator Alimentation Couche Tard (ADT.B-T), beverage company Cott Corp. (BCB-T,  COT-N) and meat producer Maple Leaf Foods (MFI-T). He has a buy on all three stocks. Here’s why:

Alimentation Couche Tard: Mr. Dley has a $71 target price. (Consensus is $74.42. The stock is currently trading around $62). His reasons to own include: strong momentum in quarterly results, especially in the U.S.; a healthy balance sheet; and the fact that it trades at a discount to its peers. The shares are up 30 per cent over the past year.

Cott Corp: Mr. Dley has a $15 (U.S.) target price. (Consensus is $13.59. The stock is currently trading around $10.90 on the NYSE). His reasons to own include benefits from its acquisition of DS Services, which have shifted Cott’s product mix to “much higher-growth categories of the beverage industry.” The acquisition has also improved Cott’s margin profile and includes a number of cross selling and acquisition opportunities,” Mr. Dley said. He also believes Cott’s contract manufacturing will help to offset any further declines in its legacy Cott’s legacy carbonated beverage business. Cost is also trading at a “steep discount” to its peer, the analyst notes. Cost shares are up more than 55 per cent over the past year. (See chart below)

Maple Leaf Foods: He has a $25 target price, a slight premium to its current price around $23.45. (Consensus is $24.67). Mr. Dley’s reasons to own include an anticipated re-rating of its valuation once the company achieves 10 per cent earning before interest, taxes, depreciation and amortization (EBITDA) margins, “implying 25 per cent upside to the current share price.” He said management, longer term, believes 10 per cent EBITDA margins “represent a floor, not a ceiling,” Mr. Dley said. “Growth opportunities and capital return mechanisms represent

the next leg of growth.” Maple Leaf shares have risen about 20 per cent in the past year.

RBC Dominion Securities has initiated coverage of real estate services company Altus Group Ltd. (AIF-T) with a “sector perform” and $21 price target, about 11 per cent above its current value around $18.90. The analyst consensus price target for Altus Group over the next year is higher at $22.83.

Toronto-based Altus Group is undergoing a transition from a real estate services provider to an information and software company for the industry, which RBC analyst Paul Treiber says is already reflected in the stock price.

“Altus’ shares offer lower capital appreciation and organic growth potential compared to pure-play stocks. Moreover, headwinds to Canadian services businesses may be sustained,” Mr. Treiber said in a Dec. 15 note.

“With 58 per cent of Altus’ total revenue tied to the Canadian real estate services market, RBC’s outlook for a 6 per cent year-over-year contraction in real estate transactions in Canada is a headwind to Altus’ core real estate services.”

Still, he expects software and data revenues to grow, which should help improve fundamentals.

“Altus is developing a portfolio of software and data solutions, which we see as comparable to Bloomberg applied to real estate. Vertical market software is structurally attractive and the opportunity for software in real estate appears large,” the analyst said.

His outlook is for the company’s software and data revenue to grow at a compound annual growth rate of 17.6 per cent between 2015 and 2017, to 37 per cent of total revenue.

“A higher mix of software would be accretive to margins, cashflow, and ROIC [return on invested capital] in our view,” Mr. Treiber says.

Altus shares are down 7 per cent over the past year (see chart below). Among six analysts that cover the stock, five have a “buy” rating, according to Thomson Reuters. Mr. Treiber at RBC has the only “hold.”

“Altus’ potential capital appreciation through acquisitions will be at a slower pace than pure-play consolidators in our universe,” Mr. Treiber said.

“Altus’ real estate services businesses dilute the organic growth from software; as a result, we expect Altus’ organic revenue growth at 4.6 per cent per annum between 2015 and 2017, which is below Canadian secular-growth stocks (median 21 per cent).”

Noble Life Science Partners is initiating coverage of  specialty pharma company Aequus Pharmaceuticals  Inc. (AQS-V) with a “buy” and a 12-to-18 month target price target of $1.90, which is a tripling of its current price just under 60 cents.

Aequus is a Vancouver-based specialty pharmaceutical company that develops and commercializes drugs in Canada, with a focus on therapeutic areas such as  neurology, ophthalmology, and transplantation.

Noble analyst Nathan Cali said the company’s focus is development and commercialization of long-acting alternatives to currently approved drugs “that are limited by noncompliance, high-frequency dosing, first-pass metabolism, side effects or painful injections.”

He said the company is building its commercial and development pipeline through acquisitions and the development of an internal pipeline.

“Aequus has signed several value driving agreements in 2015 that may offer investors significant future value in addition to the company’s neurology based transdermal development pipeline,” he said in a note on Dec. 9.

“We expect value to be driven through the advancement of the two transdermal programs with the use of already approved active agents in the U.S.”

One is a transdermal application of Abilify (aripiprazole) intended to treat Bipolar I disorder, “with the potential for additional product line extensions into autistic disorder, schizophrenia and major depressive disorder (MDD),” he noted.

In July 2015, Aequus bought TeOra Health, a Canadian based specialty pharmaceutical company focused in oncology, ophthalmology and transplant medications.

In October, Aequus signed a binding term sheet to exclusively promote and be a marketing partner for Tacrolimus immediate release (IR), a calcineurin inhibitor, immunosuppressant prophylaxis of organ transplant rejection (kidney, liver, and heart). Tacrolimus is currently owned by Sandoz and the prophylactic transplant market in Canada is estimated at $300 million, Mr. Cali noted.

He said the company could announce additional product line extension through Sandoz. On Dec. 2, Aequus announced the promotional launch of Tacrolimus, which Mr. Cali says is the first product that is expected to generate revenue for the company.

Citigroup Global Capital Markets is underscoring the critical role it sees lithium playing in the future economy, in everything from energy storage in the automotive sector to consumer electronics and electricity distribution.

As world leaders gather in Paris to talk about tackling the impacts of climate change, Citi analysts are eyeing the benefits for investors interested in the lithium market.

Lithium-based batteries provide higher voltage, higher power density, lower discharge rates with no memory affect versus the competing alternatives, Citi says. “This makes it the go-to technology for energy storage,” the analysts wrote in a note on Oct. 16.

“We see positive demand from electric vehicles further tightening the lithium market already buoyant from consumer goods and industrial applications.”

It forecasts lithium carbonate prices to rise to about $7,000 (U.S.) per tonne by mid-2017, “before a wave of projects enter (and reenter) the market dampening prices.” Still, the analysts expect prices to be maintained about $6,000 per tonne for the rest of the decade.

“The mass adoption of pure electric vehicles such as the Tesla Model S or the Nissan Leaf would be a boom to the lithium market,” Citi says. It forecasts electric vehicle production of 1.04 million in 2020 (up from 0.15 million in 2015). That could raise annual consumption to a rate equivalent to a 56 per cent CAGR [compound annual growth rate] between 2014 and 2020.

“There are significant government incentives in place across the globe to encourage this adoption trend,” Citi notes.

It also says Lithium-ion batteries remain the dominant technology for consumer electronic applications, driven by the increased power intensity of mobile handsets as the developing world transitions to smart phones.

It also has a key role in electricity distribution: “Grid scale battery storage is at a very early stage, but lithium based batteries have the capability to increase energy reliability in undeveloped grids, balance short term grid fluctuations, reduce grid congestion and load shift power requirements from peak periods. We see the consumption of lithium in this segment as relatively modest, but it does have upside potentially.”

The analyst notes that lithium production is dominated by four producers who control about 90 per cent of the market: Tianqi Lithium, Albermarle, SQM and FMC with Orocobre set to join the group in 2016.

RBC Capital Markets is becoming slightly more bullish on power generator company TransAlta Corp. (TA-T, TAC-N), saying the benefits of Alberta’s new climate change policy will outweigh the risks.

Analyst Robert Kwan upgraded the stock to “sector perform” from “underperform” last week and increased his target to $7 from $6. The stock closed Friday at $5.56 on the Toronto Stock Exchange.

“Due to a combination of the release of the Alberta climate change framework and the stock’s being within striking distance of a 52-week (and all-time) low, we see enough symmetry in the upside potential and downside risk to upgrade the shares,” Mr. Kwan said in a note on Nov. 23.

The Alberta government announced a new climate agenda on Nov. 22 that includes an economy-wide carbon tax starting in 2017 and a phaseout of coal-fired power in the next 15 years.

TransAlta said the news brings certainty to the company and its shareholders.

“In the past six months we’ve seen a significant devaluation of our stock price due to the uncertainty of the future value of our coal assets in Alberta,” TransAlta chief financial officer Donald Tremblay said in a statement. The stock has dropped about 50 per cent in the past six months.

TransAlta, a major generator of coal-fired power, also said it’s analyzing various growth opportunities in renewables, including hydro, solar, wind and gas as part of a clean power strategy.

“The new Alberta climate change framework likely eliminates the worst- case scenario,” RBC’s Mr. Kwan said. Still, he recommends that investors with a low-risk tolerance and/or seeking a high yield “should look elsewhere” than TransAlta.

He believes TransAlta stock will have “above-average volatility” in the near term and expects the company to cut dividends. TransAlta currently pays a quarterly dividend of 18 cents per share, which currently yields about 12.4 per cent,

“We do not view the stock as appropriate for investors with a low-risk tolerance or those expecting the company to sustain the dividend,” Mr. Kwan said.

Among 11 analysts that cover the stock, seven have a “hold” and three a “buy,” with one “sell,” according to Thomson Reuters. The analyst consensus price target over the next year is $8.50.

RBC Capital Markets initiated coverage of Hydro One Ltd. (H-T) with an “outperform,” saying the newly public company is “an attractive addition to our positive view on the regulated utilities sub-sector. “

Analyst Robert Kwan has a $25 target, which is more than 10 per cent above its current price around $22.50.

Mr. Kwan expects the stock to provide investors with an “attractive” 4-per-cent yield and anticipates  dividend growth in the 4-to-4.5 per cent compound annual growth rate through 2019, “tracking rate base growth with good potential for upside if Hydro One is able to achieve growth via operational efficiencies.”

Toronto-based Hydro One started trading on the TSX on Nov. 5, at an initial public offering price of $20.50 per common share, raising $1.66 billion for the province of Ontario. The offering, one of the largest in Canada, was made through a syndicate of underwriters led by RBC and Scotiabank.

Hydro One is Ontario’s largest electrical transmission and distribution utility with approximately $23 billion in assets and 2014 revenues of more than $6 billion.

RBC’s $25 share price target is based on 20 times forward earnings per share estimates for 2017 and similar to what it uses for Fortis. Mr. Kwan views Fortis as the most comparable stock to Hydro One given that both companies derive their earnings from regulated businesses.

“While Hydro One’s base growth is slightly lower than what we expect from Fortis, we believe that the stock will trade in line with Fortis’s shares given Hydro One’s upside optionality from transmission and cost efficiencies along with what we see as underlying demand for the stock post the IPO,” he said in a note on Nov. 16

The analyst consensus price target for Hydro One over the next year is $23.10. CIBC World Markets has a “sector perform” on Hydro One and a $22 target price, while National Bank has an “outperform” and $26 target.

BMO Capital Markets has a $23.50 target and “market perform” rating. In a note titled “Wired for Stability,” analyst Ben Pham said Hydro One has a total return potential below BMO’s coverage group average.

However, the analyst said he sees “attractive long-term upside as dividends rise over time, creating a positive bias for long-term investors seeking an attractive growing yield amid a sub-2-per-cent bond yield environment.”

Hydro One reported an 11-per-cent rise in third-quarter profit on Nov. 13, driven by increased demand due to warmer-than-usual weather.

The company, 85 percent owned by the Ontario government, said revenue rose 5.7 per cent to $1.65 billion in the quarter ended Sept. 30. It said average annual 60-minute peak demand rose 5 per cent to 22.32 gigawatts during the period.

BC Capital Markets recently upgraded wood panel producer Norbord Inc. (NBD-T) to a “top pick” and increased its price target, citing a strong U.S. housing market and tighter supply in the key oriented strand board (OSB) market, which could lift prices and profits.

“With the U.S. housing recovery accelerating of late (2016 consensus forecast of 1.3 million housing starts) and 70–75 per cent of Norbord’s overall mix directly or indirectly tied to housing, we remain positive about the company’s revenue stream from North America,” RBC analysts Paul Quinn said in a note on Nov. 11.

“In Europe, management recently highlighted that it is

beginning to see the bottom of the Continental OSB prices and cited the recent uptick in prices in Germany.”

He also said Norbord continues to demonstrate “its superior operations by consistently achieving 8–to-10 per cent above-average OSB margins.”

Meantime, OSB prices are up 40-to-60 per cent from their recent low in late July, “an impressive but not

unprecedented move,” Mr. Quinn said.

“While we expect OSB to see a seasonal decline in

production activity in the winter months (as building activity slows), we believe this will be offset by the recent rally in pricing (due to the lag effect of realizations).”

At the same time, Mr. Quinn said he expects market conditions to improve in the spring and drive a “material pick-up in residential construction activity

levels.”

Added Mr. Quinn: “We have revised our OSB supply-demand model to reflect further delays in oncoming capacity, which should support elevated OSB prices further into the future.”

Mr. Quinn upgraded his price target to $38 from $32.  The analyst consensus price target for Norbord over the next year is $32.39. Of the seven analysts that cover the stock, four have a “buy” and three have a “hold,” according to Thomson Reuters.

The stock is currently trading around $27, which implies a 40-per-cent gain to Mr. Quinn’s target the months ahead. It has climbed about 12 per cent over the past year (see chart below).

Mr. Quinn says company is Norbord is trading at a discount to peers, and could gain a higher valuation if it sought a a U.S. listing.

CIBC World Markets initiated coverage of CPI Card Group Inc. (PMTS-Q, PNT-T) with a “sector outperformer” and $14  (U.S.) price target, about 15 per cent above its current price on the Nasdaq.

Analyst Stephanie Price says the Littleton, CO-based financial payment card company is “well positioned” with a 35-per-cent market share in an industry with “significant” barriers to entry.

It’s “sticky customer base” with an average tenure of 13 years should also give investors comfort, she added.

“We expect near-term organic growth of 15 per cent through 2017 as the U.S. converts from magnetic stripe financial payment cards to EMV (chip cards) at a higher price point (approximately $1/card versus 20 cents/card),” Ms. Price said in a note on Nov. 3.

“Post 2017, we expect a second wave of growth could come from the rollout of dual-interface (tap-and-pay) cards.

Ms. Price said she expects CPI to average double-digit earnings-per-share growth through 2016 and “stable” productivity. She also predicted the company will continue to utilize its cash flows to make further acquisitions.

BMO Nesbitt Burns analyst James Fotheringham also initiated coverage recently with an “outperform” rating and a $16 target, about 40-per-cent above its current price.

He said his target is based on a 10.5 times multiple for 2016 adjusted EBITDA estimate of $117 million, including net debt of $316 million.

“We believe that our target multiple is conservative, because it is in line with payment-related peers that offer less growth potential than CPI,” Mr. Fotheringham said in a note on Nov. 3. “We see potential for even further upside (beyond our target price), driven by the combination of multiple expansion (following demonstration of growth potential) and earnings upgrades (from higher EMV card pricing, increasing demand for prepaid cards, and/or accretive application of excess cash).”

He said CPI is the “purest public play on U.S. EMV conversion” and forecast a sixfold increase in EMV credit and debit card production from 2014 to 2018.

“We also recommend buying PMTS shares because the market undervalues the sustainability of EMV-related earnings, in our view,” the analyst said.

“In our opinion, the catalysts for multiple expansion and higher valuation are the delivery of strong growth and margin expansion, the deleveraging balance sheet, and increased market confidence in the company’s growth profile past the current chip card rollout surge.

CPI shares started trading on Oct. 9 at a price of $10, and have since traded between a high of $13.50 and low of $10.49.