Adding Three Names From Franklin ClearBridge Canadian Small Cap Fund

By Will Ashworth

The world changed immensely with Donald Trump's election on Nov. 5. The newly elected leader of the world’s biggest economy will be tough on Canada during his four years in the Oval Office. 

While that’s not going to change which stocks I like and want to talk about, you can be sure that CEOs across Canada are trying to figure out what Trump’s election means for their businesses, if they haven’t already factored this into their 2025 business plan.  

This is the fourth of 10 installments to get me to 30 businesses to analyze over the next few months. I’ve selected the Franklin ClearBridge Canadian Small Cap Fund, which has $195 million in net assets. 

Approximately 62% of the fund’s 46 holdings are small-cap stocks, while 38% are in mid-cap stocks.  The average market cap of the holdings is $2.49 billion. The top three sectors by weight are energy (23.45%), industrials (12.51%), and financial services (11.68%).  

Happy Investing.

Empire Co. (EMP.A)

Empire Co. (TSX:EMP.A) is the holding company that owns Sobeys, which in turn owns  its other brands, namely Safeway, Farm Boy, Longos, Lawtons Drug, etc. The Nova Scotia-based company has a $9.87 billion market cap, making it the smallest of Canada’s three large grocery store chains. 

While Empire is best known for its ownership of Sobeys, it also owns 41.5% of Crombie REIT (TSX:CRR.UN, OTCMKTS:CROMF), which was Empire’s real estate arm until being spun off in March 2006. The REIT went public with 44 retail, office and mixed-use commercial properties in six provinces. 

Two years later, the REIT acquired another 61 retail properties with 3.3 million square feet of gross leaseable area from Empire for $429 million. The properties consisted of 40 standalone grocery stores and 21 strip malls anchored by Sobeys-bannered grocery stores. Today, Crombie has 305 properties with 19.3 million square feet. 

It also holds minority equity positions in several companies owned by Genstar Capital, a San Diego-based private residential real estate developer.

However, make no mistake. Sobeys is the holding company’s big moneymaker.  

Enerflex (EFLX)

Enerflex (TSX:EFX, NYSE:EFXT) manufactures natural gas compression systems, electric power generation equipment, refrigeration systems, production and processing equipment, and gas processing and treatment facilities. The Calgary company also designs and builds these facilities. Enerflex has a market cap of $1.23 billion. 

The company's history dates back to 1980. It operates in 20 countries worldwide, including Canada and the United States. It has four state-of-the-art fabrication facilities in Calgary, Houston, Oklahoma, and Brisbane, Australia.

Enerflex has three reportable geographic segments: North America (60% of revenue), Latin America (15%), and the Eastern Hemisphere (25%), which consists of the Middle East, Africa, Europe, and Asia Pacific.

It has three product lines: Energy Infrastructure (25%), After-Market Services (21%), and Engineered Systems (54%). 

Like most businesses that depend on the oil and gas industry for much of their revenue, Enerflex’s sales have jumped around in the past five years, from a high of $3.16 billion in 2023 to a low of $960 million in 2021. 

This is not a stock for an impatient investor.

InterRent Real Estate Investment Trust (IIP.UN) 

InterRent Real Estate Investment Trust (TSX:IIP.UN, OTCMKTS:IIPZF) is a REIT focused on multi-unit residential properties. It has a market cap of $1.62 billion. The Ottawa-based firm was created in October 2006. It has traded on the TSX since April 2007. 

As at Dec. 31, 2023, it owned or managed properties with 13,907 suites, 12,088 owned outright, a 50% interest in another 1,214 suites, and a 10% ownership in 605 suites. 

Approximately 85% of the suites are in Greater Toronto, Hamilton, Montreal, Ottawa and Vancouver — the remaining 15% in mid-sized Canadian cities.  

The REIT’s three goals are to grow its FFO (funds from operations) and NAV (net asset value) per unit, to consistently grow its monthly cash distributions, and maintain a conservative payout ratio and balance sheet.

InterRent’s suites represent just 1.1% of the CMHC rental market universe, providing significant opportunities in the Canadian multi-family residential real estate market. 

It yields a healthy 3.5%.

Until next time. 

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.