Bruce Campbell, president and portfolio manager at StoneCastle Investment Management
Focus: Canadian stocks

MARKET OUTLOOK

The markets have been extraordinarily strong over the last few months. This has boosted many company’s stocks, sectors and indexes to new highs. The new highs have pushed sentiment to excessive levels; The put-call ratio, the National Association of Active Investment Managers Index and the CNN Fear and Greed Index are a few indicators showing extreme levels.

You can’t use sentiment as a market-timing tool at the top, but a correction could occur at any point in time. On top of the extreme sentiment, there are numerous macro crosscurrents that are swirling around and potentially confusing investors. We would use any pullback to add market exposure. Breadth is strong and continues to expand by capitalization and sector. As a result, any pullback should be manageable.

In the last few months, we have started to see new sectors joining the breadth expansion. We successfully used our top-down sector analysis work to position and reposition our portfolios during the year to take advantage of these moves and generate outsized returns. We continue to see some interesting trends emerging that may surprise investors in 2021.

We review the top-down indicators and assess the sector rotation in our monthly webinars. The next webinar is scheduled for Dec. 9. To receive an invitation to the webinar, please send an email to info@stonecastlefunds.ca and we will add your email to our invite list.

TOP PICKS

GOOD NATURED PRODUCTS (GDNP TSXV)

Good Natured Products is a North American Leader in plant-based packaging products. The management team has been methodically building their platform to catapult organic and acquisition growth. In fact, they just announced an accretive acquisition of Integrated Packaging Films last week. Expect further acquisition and organic growth in the year to come. Last purchase was $0.88.

TAMARACK VALLEY ENERGY (TVE TSX)

Sector rotation is leading investors into the energy sector. Tamarack Valley is a ESG-focused energy producer with operations in Alberta and Saskatchewan. The company has a strong balance sheet with ample liquidity to produce strong cash flow at current commodity prices. Last purchase was $1.

DYE & DURHAM (DND TSX)

Dye & Durham provides instant access to government public databases allowing legal and business professional to accurately review records. The company went public earlier this year and has since raised more money to make accretive acquisitions. This past week they announced the first of what analysts expect to be several acquisitions. Last week’s acquisition was in Australia where analysts think they may focus in the future. The last purchase was $22.97.

PAST PICKS: DEC. 9, 2019

CANOPY GROWTH (WEED TSX)

• Then: $28.17
• Now: $36.69
• Return: 30%
• Total Return: 30%

XEBEC ADSORPTION (XBC TSXV)

• Then: $2.32
• Now: $6.76
• Return: 191%
• Total Return: 191%

LIGHTSPEED (LSPD TSX)

• Then: $34.03
• Now: $77.86
• Return: 129%
• Total Return: 129%

Total Return Average: 117%