New world, according to GARP

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This article was published 03/05/2025 (185 days ago), so information in it may no longer be current.

It may not be as widely recognized as the John Irvine novel or the Robin Williams movie, but the investment world according to GARP — growth at a reasonable price — should be of interest to anyone who wants to find companies that can compound tremendous wealth over many years.

It’s an approach favoured by many successful stock pickers.

And it’s a guiding light for equity analysis at investment research firm Keystone Financial in Vancouver that runs its own portfolios of Canadian and U.S. stocks, analyzing more than 8,000 equities across both markets.

“We’re looking for companies that we think are good businesses with strong long-term growth prospects,” says Ryan Irvine, president and chief executive officer of Keystone, which also provides equity research for average retail and large institutional investors.

“Many times, we like these business, but we just don’t like the price.”

That’s where the reasonable price piece ensures GARP investors don’t pay too much. Recently featured in another Money Matters column about Canadian small caps, Irvine has returned to offer insights into the GARP process, analyzing three Canadian small cap stocks its research team has tracked for years.

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Propel Holdings Inc.

Ticker on TSX: PRL

Market cap: about $1 billion

52-week share price range: $19.91 to $43.36

Propel is a fintech company specializing in subprime consumer loans. The company is notable from a GARP viewpoint because its share price has fallen with the broader market downturn.

“We have long liked the business, but didn’t like it at $40 a share, but we did when it trades at a 35 per cent discount,” Irvine says, noting Keystone bought Propel at $22 a share.

Counter-intuitively, Propel benefits when the economic picture gets gloomy.

“If there is a recession, it actually helps their loan book,” Irvine says. Propel — which lends more in the U.S. and the United Kingdom than Canada — benefits because banks become more cautious.

“Some of the quality of people they lend to improves because the banks get even more cautious and stop lending to some customers they typically would.”

The company is not without risks, including regulatory. Governments could limit interest rates on high-risk loans. As well, a “catastrophic” recession would be bad new for Propel.

“Then again, everyone gets killed in a catastrophic recession,” he adds.

Propel also pays a dividend, so “you’re getting paid to wait” for future growth.

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Orbit Garant Drilling Inc.

Ticker on TSX: OGD

Market cap: about $56 million

52-week share price range: $0.47 to $1.60

The most speculative recommendation of the three stocks, Orbit Garant has been shunned for years by investors for good reason. Yet a recent shift in strategy has changed its prospects from a money loser to a cash generator.

“This is called an orphan stock,” Irvine says about the Canadian drilling company serving the mining industry. “They had operations in West Africa and basically lost money for years.”

Other operations — working for gold and copper miners in Chile and Canada — have been and are very profitable. Orbit exited its African operations last year, making it “quite profitable” overall.

Keystone recommended investing at about 70 to 90 cents a share earlier this year.

Today, it trades about double that share price.

It still has tailwinds for profitability even in this uncertain environment because drilling for gold is increasing amid record prices for the precious metal.

“Uncertainty leads to higher gold prices, and higher gold prices lead to more companies drilling for more gold,” Irvine says.

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Dynacor Group Inc.

Ticker on TSX: DNG

Market cap: approximately $208 million

52-week share price range: $4 to $6.25

Another way to gain exposure to gold’s high price without the risk of buying the commodity at its peak is owning shares in a company that profits from gold no matter its price.

Dynacor processes gold ore at its lone mill in Peru and has done so with growing profitability for several years while increasing its dividend. Yet investors have largely ignored the company simply because “not many know about it,” Irvine says.

Higher prices are more favourable for its profitability, but it makes money even when gold prices are lower.

“Their model is simple; they work with small-scale miners in Peru who bring them the ore and make money on the spread between what they pay for the ore and what they sell the gold for on the market.”

Other processors do this, too, but Irvine says Dynacor pays its miners up front and at a premium, enabled by a strong balance sheet — its assets far outweigh its liabilities. That gives it an edge, he adds.

Its growth potential today is what makes it truly compelling, Irvine adds.

Currently, Dynacor processes about 300 tonnes of ore daily and produces about 110,000 ounces of gold a year. But it has plans to expand in other countries, including Ecuador, where it has a letter of intent to purchase and upgrade an aging gold mill that will double production. All told, Dynacor aims to produce 500,000 ounces of gold annually by 2030.

“Some of the best companies we’ve invested over time have done one thing really well in one market and then expanded that to other markets,” Irvine says, noting auto body giant Boyd Group Services Ltd. — a legendary Canadian GARP stock — is among them.

He adds Keystone has been a Dynacor investor for many years and is now fielding calls from institutional investors asking about the company.

A lightly traded, niche company, Dynacor can be volatile like many Canadian small cap companies, which highlights the need for GARP investors to be patient.

Even highly profitable companies can fly under the radar for years before the market finally catches on, Irvine says. “It takes awhile sometimes.”

Joel Schlesinger is a Winnipeg-based freelance journalist.

joelschles@gmail.com